Parliamentary Archives,
HL/PO/JU/4/3/858
BELL AND ANOTHER
v.
LEVER BROTHERS, LTD., AND OTHERS.
Viscount
Hailsham
burgh.
Thanker-
ton.
Lord Blanesburgh.
MY LORDS,
I understand that my noble and learned friend Viscount Hail-
sham has read the judgment about to be delivered by my noble and
learned friend Lord Warrington of Clyffe and agrees with it. This
is my own opinion which I now proceed to express.
This is an Appeal by the Defendants from an order of the
Court of Appeal of the 17th of November, 1930, which affirmed
a judgment of Mr. Justice Wright of the previous 5th of June
pronounced after the trial of the action before himself and a
City of London Special Jury. By his judgment the learned
Judge, amongst other things, ordered that two several agreements
—I propose to refer to them as the agreements of settlement—
made on the 19th March, 1929, with each of the Appellants by
the Respondents Lever Brothers, Ltd., should be set aside and
that the moneys received under them should be repaid to Levers.
The sum which the Appellant Mr. Bell had thus to repay included
premiums amounting to £1,224 2s. 3d. on an endowment policy,
later to be mentioned, which under the agreement of settlement with
him had been paid by Levers on his behalf.
The facts of the case and the course of the litigation make a
long story, even if, in detail, those incidents only are dwelt upon
which have a bearing upon the issues remaining to be dealt with
on the Appeal.
In Niger Co., Ltd., a company of large resources, with a paid-up
capital of £4,750,000 and issues of debenture stock aggregating
£5,500,000, Levers had as shareholders a controlling interest. They
held in and after 1925 99.5 per cent, of the issued share capital.
The business of Niger was to deal in West African products,
including cocoa. It is with its cocoa business alone, exten-
sive enough in itself, but only a portion of its total activities, that
this case is immediately concerned. For several years before
1923 Niger had been meeting with heavy losses, and Levers, for
the protection of their then large investment in it, had themselves
been financing or bearing these losses. Confronted in 1923 with
the urgent problem of securing less unfavourable results, Levers
approached the Appellants with an invitation to undertake between
them the reorganisation and management of Niger.
At that time Mr. Bell was joint manager of one of the great
London banks. He had had a long experience of banking, with
some knowledge of trade on the West Coast. Mr. Snelling’s
selection was due to the fact that he was an accountant of excep-
tional ability who had just rendered notable service to Levers in
bringing about a favourable adjustment of Inland Revenue demands
upon them.
Under Mr. Bell’s engagement with his bank he was entitled
on retirement after a few further years’ service to substantial pen-
sion rights. As he would forfeit these if he were to leave the bank
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2 [2]
to take up other work, some substituted provision on this head,
operative without reference to the duration of the new service,
was for him of essential importance. It does not appear that any
similar sacrifice was involved in Mr. Snelling’s acceptance of the
offer made him, and this difference of circumstance in the two cases
is reflected in the final agreements reached. In the result Levers’
invitation was favourably entertained by both Appellants, and in
due course the conditions of their employment were embodied in
letters passing between Levers, or the late Lord Leverhulme on
Levers’ behalf, and the Appellants respectively. These letters and
the formal agreements referentially embodying their terms—separ-
ate agreements with each Appellant—were to the following effect.
For Mr. Bell, Levers were to take out and pay all premiums upon
an endowment policy on his life, but maturing at sixty or previous
death for an amount which on death before maturity would provide
£16,200, and on maturity would provide £1,500 per annum or
£16,200 at his option. The policy was to belong to Mr. Bell and
the premiums were to be paid by Levers, notwithstanding the ter-
mination of his engagement, unless it was terminated by himself. To
this obligation on Levers’ part, I must return later. I pause now
only to observe that Mr. Bell’s secession from the service of his
bank to undertake his new employment—an act at once complete—
was the entire consideration for this particular promise on Levers’
part and stands out separate from the other provisions of the
agreement.
For the rest Mr. Bell was to be appointed and maintained by
Levers as Chairman of Niger for five years from the 1st of Novem-
ber, 1923, at a salary of £8,000 a year, during which time he was
to devote the whole of his time and attention during business hours
” to the business ” of Levers. Thus was it expressed in the formal
agreement of 9th August, 1923. As to Mr. Snelling he was to
serve ” in regard to the West African interests ” of Levers (note
the phrase) for five years from the 1st October, 1923, at a salary of
£10,000 per annum to the 31st March, 1925, and of £6,000 per
annum for the rest of the term. There was in the formal agree-
ment with him the same provision as to his time and attention
that was contained in the agreement with Mr. Bell.
In July, 1926, by further agreements then entered into the
service of the Appellants was continued. The earlier contract with
Mr. Bell was replaced by a fresh agreement for five years from
the 1st of July, 1926, at the same salary and insurance premium
with the addition of a commission in certain events which never
in fact became either actual or prospective. Mr. Bell was to be
Chairman of Niger for the whole term.
The new agreement with Mr. Snelling was for the same
extended period, at his same salary of £6,000 per annum, with
the same commission as in Mr. Bell’s case. Mr. Snelling was to
be Vice-Chairman of Niger for the whole term.
On the 14th September, 1923, Niger formally appointed both
Appellants to be Directors of the Company and the Appellant
Bell to be its Chairman. On the 8th of April, 1924, Mr. Snelling
was formally by Niger appointed Vice-Chairman of the Company.
From the autumn of 1923 until the end of April, 1929, when their
service ceased under the agreements of settlement now in question
the joint management of the Appellants continued through the
exercise by them of the duties attached to these two offices and to
the Directorate of Niger’s Associated Companies, to which also
they were appointed. With reference to that joint management,
it is convenient at once to observe that although in the letters of
appointment it was to the ” business ” or to ” the West African
interests ‘ of Levers that the Appellants were respectively
apparently to attend yet from the beginning to the end of their
[3] 3
engagement as probably always intended, it was in the business of
Niger that they were exclusively employed. It was by their appoint-
ment to the Chairmanship and Vice-Chairmanship of Niger and
to the directorate of its many associated companies with all
attendant responsibilities as such that they were clothed with the
necessary and only powers of management and control which they
ever exercised or possessed.
The consequences flowing from all this are important. As
will appear later these were never fully appreciated at the Trial
and the resultant confusion is only now clearly revealed before your
Lordships’ House. Although Lord Leverhulme in one of his letters
to Mr. Bell did point out to him that he would be responsible for
his actions to the shareholders of Niger it is not plain that by
that expression Lord Leverhulme meant more than Lever Brothers,
Limited, and it is sufficiently clear from other indications that to
his business mind Lever’s West African Interests, Lever’s West
African business, and the Niger Company Limited, were practically
convertible terms, notwithstanding the fact that the .5 per cent.
outstanding shares in Niger represented 23,750 shares of £1 each
held by 300 shareholders, and that £5,500,000 Debenture Stock was
outstanding in the hands of the public. And this view, natural
enough perhaps to a layman of Lord Leverhulme’s realism, re-
mained persistent up to the close of the Plaintiffs’ case at
the first hearing of this action. Until then Levers were
the only Plaintiffs: the theory still apparently being that
Niger was so subordinate to Levers that to a suit which in
large measure was for the vindication of its own proprietary rights
it was not even necessary to make it party. The addition of Niger
as Plaintiff after the first hearing corrected, formally, this miscon-
ception, but it never entirely disappeared. Lever’s West African
Interests although there were none in question which were not the
property of Niger was a description that survived even at your
Lordships’ Bar while the Appellants both in the summing up and in
the questions put to the Jury were represented as servants, serving
two masters, Lever’s and Niger, each of whom had separate rights
of dismissal depending upon identical considerations.
How serious in its present consequences that confusion may
prove to be will emerge in the sequel. At this stage it suffices to
observe that if regard is had, as it must necessarily be, to the
essential separation in personality between Levers and Niger, to
say nothing of their possible divergence in interest, the relation in
which the appellants ultimately stood to Levers and Niger
respectively is not, as I think, in any way doubtful. By Levers’
agreements with them, Levers were bound to maintain the
Appellants in their respective offices in Niger for the prescribed
term at the prescribed remuneration. The Appellants in return
agreed with Levers, but with Levers only, to devote the whole of
their business hours and abilities to the discharge of their duties.
As between the Appellants and Niger it was in that Company’s
Articles of Association that their terms of service were to be found
(Swabey v. Port Darwen Company 1 Meg. 38), and it was by the
general law as modified by any provisions of these articles that their
responsibilities and liabilities to Niger in respect of any actions of
their own would fall to be ascertained. Costa Rica Railway Com-
pany v. Forwood, 1901, 1 Ch. 746,757.
As a result there remained no contract by the Appellants to
serve Levers in a post from which Levers could ” dismiss ” them.
Nor is ” dismissal ” the term by which their expulsion from office
by, or their cessation of office in Niger would properly be described.
So far as Levers were concerned they were as the result of their
agreement bound to maintain the Appellants in office so long only as
they fulfilled their prescribed duties as officers of Niger, devoting the
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whole of their business hours to the discharge of these duties. So
soon as they defaulted in these respects Levers would be justified in
stopping any further payments to them, and would be relieved from
the obligation of further maintaining them in their offices. But
that would be all. For the rest Levers had to rely only on their
voting power as shareholders of Niger. Again, so far as Niger was
concerned its powers, never powers of ” dismissal ” were in no way
dependent upon any breach of duty by the Appellants. The Niger
shareholders as such could at any time effectively remove the Appel-
lants by special resolution (see Article 46 (2) ), even if, in the dis-
charge of every duty they owed to the Company, their actions had
been beyond reproach or even criticism.
And now to proceed again with the narrative. From July, 1925,
the Appellants’ remuneration, fixed by their agreements with Levers
was paid to them by Niger direct, and such was the success of their
management that the unsatisfactory position of Niger to which
they had succeeded in 1923 was transformed into a state of great
prosperity. ” Every one agrees,” said Mr. Justice Wright
speaking of the Appellants in his summing up the case to the
Jury at the Trial, ” that their conduct and their work for their
” Company [was] most efficient devoted strenuous and successful.”
And here reference must be made to a matter which, although
only incidental, will be found finally to colour the whole case of the
Appellants. On the Coast, during the Appellants’ management of
Niger, there were three other concerns trading in cocoa—the African
and Eastern Trade Corporation, Limited, the Anglo-Guinea
Produce Company, Limited, and Frame and Company, Limited.
In 1925 and 1926 two agreements were come to between these four
companies. They are referred to in the proceedings as the Pool
Agreements and they were entered into for the purpose of pro-
tecting the trade of the companies in buying and selling cocoa.
By them provision was made for fixing by a Committee a Pool buying
price and a Pool selling price of cocoa, and each company was
required timeously to notify to the others and to the Pool Committee
the quantities and prices of cocoa purchased or sold by it, while,
for subsequent division amongst the four constituents according to
prescribed percentages, payment was to be made, first of a ” Pool
” Tax ” on all purchases of cocoa by each of them, and secondly of
any excess sum over a prescribed amount received on sales by any
of them. It is not however the precise terms of these agreements
which are now directly relevant: their immediate bearing upon the
case arises from a clause contained in each agreement which seeks
to associate the directors of every constituent company in the
obligations thereby undertaken by that company. The clause in the
earlier pool agreement is not a little confused. The clause in the
later agreement is however free from ambiguity and it provides
that any reference to any company party thereto shall where the
context so admits include its directors for the time being . . .
and that each party undertakes that its directors . . . shall
be bound by the terms of the agreement so far as respects their
respective dealings in cocoa (if any) and that all such dealings shall
for all purposes be deemed to be acts of such party thereto done
under the terms of the agreement and to be accounted for
accordingly.
These pool agreements were, of course, well known to the
Appellants. Indeed, they were the result of negotiations in which
one or both of them took part. The first agreement was signed on
behalf of Niger by Mr. Snelling : the second by Mr. Bell. Mr.
Snelling was a member of the Pool Committee and from time to
time attended its meetings. But both Appellants said quite
definitely and positively that actual knowledge of the existence of
[5] 5
what may be called the directors’ clause they never had, and that
until shortly before the institution of this action and some months
after the execution of the agreements of settlement they had no
idea that, as a result of any operations of their own, Niger could be
involved in any liability to the Pool. And I can myself have no
doubt that the Jury accepted as reliable the evidence of the
Appellants on this point. It is clear from the answers given by them
to the series of questions addressed to them by the learned Judge at
the Trial that the Jury regarded the Appellants as witnesses of
truth. A perusal of the record shows how invariably in
these answers the Jury had accepted the Appellants’ recollection
when it was in conflict with that of other witnesses. On
this present point there was no conflict. From its very nature
it was a subject upon which the Appellants alone could depose.
And their statements are not difficult of acceptance when the agree-
ments themselves and the situation therein of the clauses in question
are examined.
And the acceptance of this statement made by both Appellants
becomes of importance at different stages in the case, and not least
when your Lordships approach, as now you must, the task of
ascertaining precisely the nature and implications of the
transactions of the Appellants which lie at the root of the orders
under appeal. It will be convenient to refer to these as the
offending transactions. Four in number they all took place in the
short interval between the 4th November, 1927, and the 14th
December following. They were transactions in cocoa differences
on the Appellants’ behalf. They were carried through on the
market by Niger’s usual brokers on the instructions of
the Appellants or one of them and, as the Jury must
clearly be taken to have found, to the knowledge of these
brokers that they were the Appellants’ own transactions. Three
of them were more or less unprofitable. One only was successful
and the net result of the four was a profit of £1,360. In
January, 1928, the transactions were closed and the profit was
received from the brokers. And that was the end. Nothing else of
the kind happened before or afterwards. None of the transactions
in fact caused any damage to Niger, still less to Levers. No use
was made by the Appellants in the course of them either of Niger’s
property or of any information obtained by them as Directors of
Niger. Such must be the description of the offending transactions
according to the findings of the Jury who, on this subject also,
clearly accepted the evidence of the Appellants as the evidence of
truth.
To this description, however, two things must be added. The
first, that these transactions, although the Appellants were ignorant
of the fact, involved a breach of the directors’ clause of the Pool
Agreement for which—if these agreements were not invalid as being
in restraint of trade—Niger might be made responsible for the other
companies parties thereto. Apparently, however, no attempt to
ascertain the existence or the extent of such responsibility has yet
been made.
And the second, that, although in the end regarded by the
Jury in the light most favourable to the Appellants, these
transactions remained at the best most ill-advised. They had
to be executed secretly, described by separate letters lest in the
market they should be supposed to be the transactions of Niger.
And they were conducted with further secrecy so that they might
not be generally known in the office of Niger itself. Such a pro-
cedure when it is discovered inevitably arouses suspicion. No
transaction of a director open to the least suggestion of association
with his company can ever hope to escape censure or even condemna-
tion if it has been carried out in secret. In this instance once again,
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as so often before, it was the secrecy from Levers practised by the
Appellants that brought down upon them the charges of dishonesty
from which they have only escaped after a sixteen days’ hearing
before a Judge and Jury.
For of course the allegations put forward by the Respondents
with reference to these transactions made of them something very
different. Most grave were the charges of fraud levelled against the
Appellants in respect of them. That however is another story which
will find its place at a later stage of the narrative.
As has been said the cocoa business of Niger was little more than a
minor part of its total activities, and in amount the offending trans-
actions were a mere fraction of Niger’s current cocoa business. To
these considerations, coupled with the view of the transactions taken
by the Jury may be attributable the conclusion also reached by them
that these transactions did not even remain in the minds of the
Appellants when the agreements of settlement were made. They
were, it must be emphasised, not known in any way to Levers until
after these agreements had been completed.
The actual retirement of the Appellants from the Niger service
had no connection with the offending transactions. The neces-
sity for it came about in quite a different way. Niger’s principal
competitor on the coast had always been the African and
Eastern Trade Corporation already mentioned. Amalgamation
of the two concerns had in the years prior to 1929 been the
subject of negotiation on a basis of Niger having one fourth
or at best one third interest in the combine. But by 1929 the
position of Niger had so greatly improved both absolutely and
relatively that in that year the amalgamation negotiations were
revived on what has been called a fifty-fifty basis. And it is
apparent on the record that the higher participation meant for
Niger an increase of many hundreds of thousands of pounds in
money’s worth, the credit for which is not denied to the Appellants.
The negotiations for this amalgamation were long and delicate.
Mr. Snelling was on the coast while they were proceeding but Mr.
Bell rendered valuable services in bringing them to a successful
conclusion—services handsomely acknowledged at the time by Mr.
D’Arcy Cooper of Levers who explained to Mr. Bell that the way
he had put his personal position aside throughout the negotiation
had relieved him of a great deal of difficulty. (Record p. 383.)
What Mr. Cooper meant was that Mr. Bell had not stood out for
any position in the new Company for himself, although he knew
full well that if neither he nor Mr. Snelling were to join that Com-
pany, the scheme of amalgamation must necessarily involve
their retirement altogether from Niger, For by the scheme
the assets of both amalgamating Companies were with certain
reservations to be transferred to the new Company, each of the
old Companies receiving in return equal holdings of fully paid
shares in that Company. And the transfer actually took effect on
the 1st May, 1929; and as from its completion Niger became a mere
holding Company influencing by means of its voting power the
policy and administration of United Africa Limited, the new
Company, but with no outlet within its own constitution for the
undivided energies of the Appellants as its Chairman and Vice-
Chairman, respectively. All this was realised while the negotia-
tions for amalgamation were still only in progress and during that
interval steps were taken by Mr. Cooper acting on behalf of Levers
to bring about, after everything had been completed, the termina-
tion of the Appellants’ employment on some agreed terms of pay-
ment. And the ensuing negotiation conducted with the Appellants
separately resulted in the two agreements of settlement with which
this litigation has been mainly concerned.
[7] 7
The agreement of settlement come to with Mr. Bell is embodied
in a letter from Mr. Cooper to him of the 19th March, 1929, in the
following terms :
dear bell,
As promised at our interview to-day I write to record the
agreement then arrived at between us, viz., that on the pro-
visional agreement for the amalgamation of the African and
Eastern Trading Corporation and the Niger Company
becoming effective as from the 1st May next you will on that
date retire from the Boards of the Niger Company and its sub-
sidiaries, including H.C.B. and its subsidiaries and in con-
sideration of your so doing Lever Brothers, Limited, will pay
you as compensation for the termination of your agreement(s)
and the consequent loss of office the sum of £30,000 in full
satisfaction and discharge of all claims and demands by you
of every nature and kind and howsoever arising against Lever
Brothers, Limited, the Niger Company, the H.C.B. and any
company, person or firm associated with them or any of them
either directly or indirectly.
With regard to the insurance premium payable on the
policy on your life with the Yorkshire Insurance Company it
was agreed that Lever Brothers will continue to pay such
premium until the policy matures.
Will you please let me have your reply confirming the above
arrangement.
I should like to be allowed to say how deeply the Board
of Messrs. Lever Brothers appreciate the work that you have
done for the Niger Company during the period that you have
been in control.
F. D’arcy cooper.
The agreement of settlement come to with Mr. Snelling was on
lines similar to that reached with Mr. Bell. Mr. Cooper’s letter
to him of even date recording its terms is, however, as interesting
for its variations from that addressed to Mr. Bell, as it is for its
similarity thereto. It is as follows :—
March 19th, 1929.
Dear snelling,
As promised at our interview to-day I write to record the
agreement then arrived at between us, viz., that on the pro-
visional agreement for the amalgamation of the African and
Eastern Trade Corporation and the Niger Company becoming
effective as from 1st May next you will on that date retire from
the Boards of the Niger Company and its subsidiaries including
the H.C.B. and its subsidiaries and in consideration of your
so doing Lever Brothers Limited will pay you the sum of
£20,000 in full satisfaction and discharge of all claims and
demands by you under your agreement of employment or in
any other capacity whatsoever and whether in respect of salary,
commission, bonus, expenses, compensation for loss of office
or otherwise.
Will you please let me have your reply confirming the
above arrangement.
I should like to be allowed to say how deeply the Board
appreciate the work that you have done for the Niger Company
during the period that you have been in control.
F. D’arcy cooper
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In due course confirmatory letters were written and the agree-
ments were duly carried out. The Appellants received their re-
muneration and continued in active discharge of their duties until
the 30th of April following. They then formally resigned all their
directorships as required by the agreements and received from
Levers the compensation arranged.
My Lords, while it is fully accepted that the offending transac-
tions were entirely unknown to and unsuspected by Mr. Cooper
when the negotiations were proceeding, there was a serious differ-
ence of recollection between Mr. Cooper and Mr. Bell on the ques-
tion whether Mr. Bell did not, in order to justify a large payment
to himself, expressly say in the course of the negotiations that he
had faithfully and honestly served Niger during his association
with that Company. Mr. Bell was certain that he made no such
statement in any such connection and the Jury it is clear accepted
his recollection and, as will be seen later, exonerated him from the
charge of fraudulent misrepresentation based upon the allegation
that the statement was his.
With regard to these agreements of settlement there is one matter
which may be conveniently dealt with while the agreements them-
selves are immediately in mind. It is affirmed by the Respondents,
with reference to them, and the acceptance of the allegation is
implicit in the Judgments appealed from, that the sole considera-
tion moving from Levers for their agreement to pay Mr. Bell
£30,000 and Mr. Snelling £20,000 was the satisfaction of what
Lever’s, still in ignorance of the offending transactions, supposed
were their respective salary rights under enforceable agreements of
service with 2 years and 2 mouths of the term in each case unex-
pired. The suggestion touches an issue of primary importance in
the final decision of this appeal. It is, I think, demonstrably
incorrect. Although it is true that in the letter to Mr. Snelling
commission is actually mentioned, I do not find on. an examination
of the record that the prospect of any commission being receivable
by either Appellant was ever of substance and I feel satisfied that
it in no way entered into the adjustment of figures. On the basis
of salary to be lost, therefore, the maximum figure in prospect for
Mr. Bell was £17,333 6s. 8d. and for Mr. Snelling £13,000. But
these sums could not have been recovered even in actions for wrong-
ful dismissal, because allowance must in each case have been made
for the fact that the whole sum was being immediately paid and for
the further fact that each Appellant was being released from his
obligation of continued service and was being left free to seek other
remunerative employment. And this employment in the case of
Mr. Snelling at all events—Mr. Bell it seems proposed to return
to his farm—was likely to be immediate and on terms perhaps little
less favourable than those attached to the post of which he was
being deprived. Accordingly even these maxima must on this basis
have been subject to serious reduction. Moreover that this sole
consideration did not instruct the amounts paid is confirmed when
it is found that these sums were not on that footing proportionate
(as seems erroneously to have been supposed in the course of the
Trial. See Record, p. 437). If £20,000 was on this footing the
sum claimable by Mr. Snelling £26,666 13s. 4d. only should have
been awarded to Mr. Bell. If Mr. Bell’s payment of £30,000 was
the standard, Mr. Snelling should have received not £20,000 but
£22,500.
And this line of reasoning might easily be further pursued, with
the result of making it, as I think, clear that while undoubtedly
the claim for unearned salary amounting at the remote outside in
one case to over £17,000 and in the other to £13,000 was a material
consideration for the payments agreed to, it was neither on the terms
of either letter nor in fact the sole inducing cause. Into that induce-
ment there undoubtedly entered the desire tangibly to recognise the
[9] 9
exceptional services rendered to Niger by each Appellant acknow-
ledged in each letter and even now affirmed : still more perhaps to
enlist their support of the amalgamation and to have their assist-
ance in carrying it through in all its details to completion : above
all to secure on the 1st of May following the voluntary resignation
by each Appellant of all his offices, results of value, it may have
been of’ infinite value, to the prospects of a delicate negotiation in
the success of which millions of pounds were involved. And these
last two results could not have been secured if Levers, instead of
writing through Mr. Cooper the letters of the 19th March.
1929, had, with the real offending transactions then disclosed to
them, repudiated all further obligations under their agreements
with the Appellants, and as shareholders in Niger had sought, in
spite of the Appellants’ opposition—quite effective for a sufficiently
long period—to remove them from office. The vital significance of
this conclusion, even so far as it can be reached on existing materials
and apart from amplification resulting from further investigation,
will later appear.
Some two months later, as a result of inquiries made of the
Appellants with reference to certain cocoa transactions of Niger
of which complaint in arbitration proceedings was being made by
other members of the pool, the offending transactions were brought
back to the minds of the Appellants, and for the first time, as they
asserted, they became aware of the Directors’ Clause in the pool
agreements. Mr. Bell thereupon informed Mr. Cooper of the facts
relating to the offending transactions in terms which in effect were
those finally found by the Jury as above stated. There was immense
controversy at the Trial as to the details of this conversation with
Mr. Cooper, but it does not seem necessary to go more deeply into
that matter now, for Levers did not and would not accept from
Mr. Bell any innocent explanation of transactions in their view
highly improper which, until that moment, had been completely con-
cealed from them, and on the 7th August, 1929. they issued their
writ in this action with themselves alone as Plaintiffs, and the
Appellants as Defendants. The allegations made by the points of
claim were to the effect that the Appellants were the servants of
Levers; that it was their duty to serve Levers faithfully and honestly
and not to act in any way prejudicial to the interests of Levers;
that the offending transactions constituted such misconduct on the
part of the Appellants as to entitle Levers instantly to terminate
the service agreements with them and to dismiss them without
notice, and that had Levers known of the offending transactions
they would have in fact dismissed the Appellants; alternatively it
was alleged that the Appellants had wrongfully conspired to make
secret profits for themselves and that the agreements of settlement
were obtained by them respectively ” falsely and fraudulently con-
‘ cealing from [Levers] that they and each of them had [entered
‘ into the offending transactions] and also by falsely and
‘ fraudulently verbally representing to [Levers] that they had
‘ faithfully and honestly served Levers and /or Niger.”
The 26th paragraph of the Points of Claim was as follows :—
” Alternatively the said agreements (i.e., the agreements
of settlement) and each of them were made and the moneys
” paid thereunder were paid under a mistake of fact.”
Particulars being asked for of the ” mistake ” it was stated to
be ” that the defendants and each of them had acted honestly in
” their conduct of the affairs of the Niger Co. Ltd. and had not
” dealt in cocoa on their own account and/or in so dealing on their
” own account had not acted contrary to their duty and / or the
” terms of their respective contracts.”
The relief claimed was damages for conspiracy and / or
fraudulent concealment, breach of duty and breach of contract;
10 [10]
rescission of the agreements of settlement; an account of all
transactions and dealings in cocoa entered into by the Appellants
and payment by them of the amounts found due on the taking of
such account.
Objections on lines already indicated might very effectively have
been taken to the whole scheme of the action and in particular to
the relief claimed by Levers for themselves in respect of the offending
transactions in a suit to which Niger was not a party. But
none such were in terms taken. Indeed from the moment when
the Directors’ Clause of the pooling agreement was brought to the
notice of the Appellants they refrained from any justification of
the offending transactions as such and were ready to account for
all the profit they had made by them. ‘ If I had known that [the
” Directors’ Clause] existed I would not have defended even at the
” time any of the transactions that I did,” was one of Mr.
Snelling’s answers in cross-examination; and in accord with this
attitude the £1,360 profit from these transactions had, in January,
1930, been duly tendered to Niger by the Appellants, and had been
refused.
The action came on for trial before Mr. Justice Wright and a
Special Jury on the 26th March, 1930, and it was opened, and
evidence was called to prove a case of fraudulent misrepresenta-
tion and concealment only. Nothing at all was said about such
things as mistake, or duty to disclose or fiduciary relation or
uberrima fides. On the 4th day of the hearing, Levers closed their
evidence, and following, as they stated, information derived from
an examination of the brokers’ books, they applied for leave to
amend their points of claim in order to raise against the Appel-
lants further charges of fraud, the nature of which they fore-
shadowed. The trial had become one of wide public interest, and
so soon as these new charges—all of them of the gravest descrip-
tion—were stated in open Court, the Appellants, in the interests of
their own reputations felt, as they said, that they must be met.
Accordingly with no discussion except as to terms, leave to amend,
on stringent conditions, was given to Levers and the hearing, on the
amended pleadings, was adjourned until the 13th of May to be
then heard with a new Jury. During the interval the opportunity
was taken to add Niger as a co-plaintiff, with the appropriation to
Niger of the relief appertaining to the offending transactions. It
was apparently taken for granted when Niger was added as
co-plaintiff that its rights in the matter had not as a part of its
undertaking passed to United Africa on the amalgamation. Per-
haps they did not. Niger’s title to sue has not been challenged
any more than has Lever’s; although if Lever’s did quite justifiably
charge against Niger the compensation paid under the agreements of
settlement as they were charging against Niger the remuneration of
the Appellants represented by a part of it, even the right to claim
rescission of the agreements, of settlement may also have passed to
United Africa as part of Niger’s undertaking. But this objection
has not been taken. Levers, who made the compensation payments
in the first instance may have been content as between themselves and
Niger to bear them finally, and for other reasons there may be
nothing in the point. Accordingly I pass on.
A perusal of the other voluminous amendments shows that the
sting of them lay in the new allegation that the offending trans-
actions were all of them in their origin the transactions of Niger,
subsequently appropriated to themselves by the Appellants through
the innocent agency of the company’s brokers after it had become
clear to them that the transactions would be profitable. Para-
graph 26 of the original points of claim remains unaltered. But
still no case of duty to disclose, or of fiduciary relation or of
uberrima fides was made by the amended pleading.
[11] 11
My Lords, the Respondents took upon themselves a very grave
responsibility in launching at that stage against men who in all
others respects had deserved well of them these charges so grave
as to be almost criminal in character. I do not doubt that the
Respondents acted in good faith in making them. But, although
persisted in to the end of the long hearing the charges entirely
failed; and the Appellants are entitled at the least to have that
failure remembered on any application by the Respondents for
further indulgence in this action whether by way of amendment of
pleadings or otherwise. .
The matters dealt with in the evidence will in the main be found
reproduced in the questions left by the learned Judge to the Jury
at its close. To these questions reference has already been made.
With the answers given by the Jury to each, I now record them :—
1. Did the Defendant Bell and/or the Defendant Snelling
fraudulently misrepresent to the Plaintiffs Levers that they had
faithfully and honestly served Levers and / or Niger with the object
and effect of inducing Levers to make the agreements or either of
them of the 19th March, 1929?
2. Did the Defendant Bell and / or the Defendant Snelling
fraudulently conceal from Levers and / or Niger that they or either
of them had had the dealings complained of with the object and
effect of inducing Levers to make such agreements or either of them ?
3. Did the Defendants or either of them commit breaches of
contract or duty towards the Plaintiffs in
(A.) wrongfully appropriating as their own the contracts
referred to as C.T.C., R.T.D., G-S.2 [the ” offending transac-
tions “] or any of them being contracts of the Niger Company
and appropriating to themselves the profits on such contracts?
(B.) entering into the contracts referred to a C.T.C.,
R.T.D. and G.S.2 or any of them as private transactions on
their own account and for their own benefit.
(C.) in wrongfully appropriating to their own use and
benefit the sum of £1,000 being monies of the Niger Company.
(D.) If so, what damages, if any, under (A.) or (B.) or
(C.)?
Jury’s answer : (B.) £1,360. £5 nominal damages.
4. (a) Were the Plaintiffs Levers entitled to terminate the
contract of service with the Defendants or either of them
(1) in January, 1928 ?
Jury’s answer: Yes.
and (2) in March, 1929?
Jury’s answer : Yes.
If so, would the Plaintiffs Levers have elected to exercise
such right at either of such dates?
(b) Were the Plaintiffs the Niger Company entitled to dismiss
the Defendants or either of them from their positions as chairman
and vice-chairman respectively :
-
in January, 1928?
Jury’s answer: Yes. -
in March, 1929 ?
Jury’s answer: Yes.
12 [12]
If so, would tine Plaintiffs the Niger Company have elected to
exercise such right at either of such dates ?
Jury’s answer : Yes.
5. When Levers entered into the agreements of the 19th March,
1929, did they know of the actings of either of the Defendants in
regard to the dealings C.T.C., R.T.D., G.S.2?
If Levers had so known would they have made these agreements
or either of them ?
At the date of the respective interviews prior to these agree-
ments, had the Defendant Bell or the Defendant Snelling in mind
their actings in respect of these transactions ?
If these questions are carefully scrutinized it will be found that
they are based on an acceptance of Lever’s view as to the
legal position of the parties towards each other under the service
agreements. The undue prominence thus conceded to Levers served
further to divert attention from the true position, never at any
time accentuated, that the claims against the Appellants in relation
to the offending transactions were claims of Niger only and that
the validity and extent of these claims depended mainly if not
exclusively upon the regulations of Niger. It is remarkable
that so far as appears on the ‘Record these regulations were
only once mentioned—and then in the most casual way—during
the whole of the proceedings. In the summing up they were never
referred to at all. It will be noted also that no question was asked
upon the issue of conspiracy—that because the learned Judge held
that there was no evidence to support it. Lastly, with regard to
the allegation that the Appellants (had in carrying out the offending
transactions used the property of Niger or utilised information
obtained by them as its Directors, the question 3 (c) was directed
to the only matter relevant thereto, which, as a result of the evidence,
remained in doubt and in respect of that remaining matter also the
Jury as will be seen exonerated the Appellants.
The fifth of the questions was drawn up by the learned Judge
after Counsel had addressed the Jury but before the summing up.
It was in the Court of Appeal suggested that the question was
directed to an issue of mutual mistake and that the Appellants’
Counsel should have thus regarded it. 1 confess that I cannot
blame him if he did not. Put at the end of a long hearing dealing
only with grave charges of fraud and in the course of which no
such issue had been even remotely hinted at, I should myself have
thought, as I gather the Appellants’ Counsel did think, that it was
directed to the issue of fraudulent concealment, an issue which had
throughout bulked prominently in the proceedings.
It was agreed that the learned Judge was to be entitled to draw
necessary inferences of fact upon, any question that might arise
which had not been put to the Jury, and in the discussion upon the
findings and the pleaded case which took place on a later day,
Counsel for the Respondents, after claiming that Levers were en-
titled to recession of the agreements of settlement on the ground of
unilateral mistake, ended by propounding the view that they were
so entitled also on the ground of mutual mistake, that issue as they
contended having been raised by paragraph 26 of the Points of
Claim, and found in their favour by the Jury in their answers to
questions 4 (a) and 5. The learned Judge after argument, and hold-
ing, as it seems, that the issue was sufficiently raised by para-
graph 26—for he had previously intimated (Record, p. 1437) that
he would allow no question to be put to the Jury which involved
any amendment of the pleadings—finally held that the agreements
[13] 13
of settlement must be set aside on the ground of mutual mistake,
and he ordered the moneys paid thereunder, including the premiums
on Mr. Bell’s policy paid by Levers on his behalf to be repaid. The
learned Judge held that all the parties to the agreements of settle-
ment entered into them under the common mistake that the contracts
of service were binding, in the sense that they could not at that
moment have been got rid of without the Appellants’ consent.
It is, I believe, the view of all your Lordships that the order
of the learned Judge in so far as it directed the repayment by Mr.
Bell of the premiums referred to cannot stand. Wright J. over-
looked the fact that, even with the agreements for settlement set
aside, the liability for payment of these premiums would still re-
main on Levers under the original agreement of 1923 because, apart
from Mr. Bell’s agreement so to do in the rescinded agreement of
settlement there had been no termination of his engagement by him-
self. This point was discussed at your Lordships’ Bar and the
Respondents offered no objection to its being taken into consideration
by the House. Accordingly, in that respect at least, the order of the
learned Judge must now be corrected. But that is relatively a small
matter. The greater questions involved remain in issue.
The Appellants appealed to the Court of Appeal. On the 17th
November, 1930, their appeal was dismissed. The Lords Justices
took the same view on mutual mistake as the learned Judge had
done. They also held that, although in no way pleaded, his Judg-
ment could be supported on the ground that the Appellants during
the negotiation with Levers for the agreements for settlement were
under a duty to disclose their offending transactions of 15 months
before: and that they were not excused from disclosure by reason
of the fact that, as the Jury had found, these transactions had
passed from their minds. Upon the question of amendment Lord
Justice Scrutton and Lord Justice Lawrence were of opinion that
the issue of mutual mistake had not been pleaded, but, differing
in that respect from the learned Judge’s view, they saw no sufficient
reason why the pleadings should not be treated as amended so that
the issue might be decided on existing materials. In Lord Justice
Lawrence’s view the objection of the Appellants’ Counsel to that
course being taken was ” technical ” and ” devoid of merit.” Lord
Justice Greer held that the issue of mutual mistake was sufficiently
raised by paragraph 26 of the Points of Claim.
From this, the Appellants appeal again to Your Lordships’
House, and upon that appeal, and for the purpose as I assume of
obtaining a decision upon any issue open upon the pleadings,
both parties accepted the Jury’s findings as correct. Upon this
three questions at once arise. 1st, Is this issue of mutual mistake
open to the Respondents upon the pleadings; 2. If not, is this
action one in which without injustice to the Appellants the neces-
sary amendments to raise it could after verdict and on the
application of the Respondents have been allowed by the learned
Judge? May these even now on a like application be allowed by
this House; and 3. If such amendments be allowed, are the Re-
spondents entitled to judgment upon the issue raised by them. I
propose to deal with each of these questions in their order.
As to the first, I believe that all of your Lordships are of opinion
that this case of mistake is not open to the Respondents on the
pleadings as they stand. I think no other view is tenable. In
its setting, as well as according to its terms, paragraph 26 to me
seems quite unambiguous. The case pleaded by the Respondents
was on the face of it, and from beginning to end a case of deliberate
fraud on the part of the Appellants. The points of claim at great
risk to the Respondents in the matter of costs, were amended once
only that the fraud charged might be more flagrant in character.
Paragraph 26 remained unaltered. Even without the particulars
13105 A 7
14 [14]
of the mistake alleged I should not have thought that its meaning or
intent was doubtful. With the assistance of the particulars its
meaning becomes I think abundantly clear. That it is the state of
mind of Levers which is alone being therein described is, surely,
shown by the fact that the moneys are only alleged to have been
” paid ” under mistake. There is no allegation at all that the
moneys were ” received ” under the same mistake. And the par-
ticulars appear to me conclusively to show that no such allegation
was intended to be made. Further paragraph 26 if limited to
unilateral mistake induced by the Appellants’ fraud is, even although
alternative, consistent with all that precedes, but mutual mistake,
innocent on the part of the Appellants, is so entirely destructive
of everything previously alleged against them, that no interpreta-
tion of paragraph 26 involving an assumption of honesty on their
part could in the absence of the clearest words properly be placed
upon it. Finally the claim made by the Heads of Claim is for
rescission of the agreements of settlement, relief properly conse-
quent upon a case of voidability either for fraud or unilateral mis-
take induced by fraud. But if the allegation, even alternative,
was that the agreements were entered into under mutual mistake
of fact, then these were not voidable but void ab initio, and
no order on that footing is even hinted at in the relief sought.
The truth is that the Respondents having decided to charge fraud
against the Appellants did so, up to the hilt. There is no weakening
in this respect in paragraph 26. Accordingly I am of opinion that
the case on which the Respondents have succeeded in the Courts
below was not open to them on the pleadings as they stand. It
is clear also as I have said that the learned Judge only entertained
that case, because of his view which all your Lordships consider
erroneous that no amendment was called for.
2. This circumstance makes the second of the above questions
of the gravest importance. Are your Lordships in the Court of
last resort to grant an amendment which the learned Trial Judge
himself would have refused? It is convenient to set forth here the
amendment which the Respondents formulated and asked for, if
amendment was held to be required.
It was as follows :
Paragraph 26 A.
Further and in the alternative the said agreements and
each of them were made under a mutual mistake of fact and
the moneys paid and received thereunder were paid and received
under a mistake of fact.
Particulars.
The Plaintiffs Levers and the Defendants and each
of them were under a mutual mistake fundamental to the
said agreements that the said contracts of service and each
of them existed as binding obligations upon the said Plain-
tiffs and the Defendants respectively and that the said
contracts respectively could not be terminated without the
assent of the Defendants respectively.
Further or in the alternative the Plaintiffs Levers
will rely upon the particulars set out under paragraph 26
hereof.
Now there are of course no limits to the power of your Lordships’
House to permit, in proper circumstances, almost any amendment.
Nevertheless the power is not one for arbitrary exercise and I pro-
pose in dealing with the propriety or otherwise of its exercise now
to govern myself by two authoritative statements of relevant prin-
ciple, one by Lord Watson, and the other by Lord Lindley, when
Master of the Rolls. My first and second reasons for concluding
[15] 15
that leave to amend should in this case be refused are based upon
Lord Watson’s judgment in the Connecticut Fire Insurance Com-
pany v. Kavanagh 1892 A.C. 473—where the Respondent had
complained that the case which was being maintained against
him before the Judicial Committee was not within the Appellants’
declaration : that the evidence led at the Trial had not been directed
to that new case, which ought not to be entertained. Upon that
contention, Lord Watson delivering the Judgment of the Board
said :
” When a question of law is raised for the first time in a Court
” of last resort, upon the instruction of a document or upon facts
” either admitted or proved beyond controversy it is not only com-
” petent but expedient in the interests of justice to entertain the
” plea. The expediency of adopting that course may be doubted
” when the plea cannot be disposed of without deriding nice ques-
” tions of fact, in considering which the Court of ultimate review
” is placed in a much less advantageous position than the Courts
” below. But their Lordships have no hesitation in holding that
” the course ought not, in any case, to be followed unless the Court
” is satisfied that the evidence upon which they are asked to decide
” establishes beyond doubt that the facts, if fully investigated would
” have supported the new plea. To accept, the proof adduced by
” a defendant in order to clear himself of a charge of fraud as
” representing all the evidence which he could have brought forward
” in order to rebut a charge of negligence might be attended with
” the risk of doing injustice.”
Except, that in that instance, the new case was one of negli-
gence, whereas here the new case is one of innocent mistake, Lord
Watson’s observations seem to me to be entirely in point, and I
base myself upon them as I proceed.
And my first reason for the conclusion that this amendment
should not be allowed is this. It raises, as something quite new,
and in an action hitherto based on fraud alone, an issue with all
fraud eliminated. If the amendment were allowed, the Appellants
in the discussion of that new issue would find themselves faced with
and bound by the answers of the Jury to the 4th question. But, on
examination of the learned Judge’s summing up, it appears, as I
think, quite clearly that these answers were given by the Jury under
a direction which, although it might have been allowed to pass as
relatively harmless in a case based upon fraud, was one, which as
applied to a case from which all fraud has been eliminated, cannot
in point of law, as I think, be supported. It is not necessary to
suggest—it may not be permissible for me even to speculate upon—
what, under a proper direction, as applied to the new case, the
answers of the Jury to the questions would, or should, have been.
It is enough, for present purposes, to say, as I do. that to allow the
Respondents to make this new case, with the Appellants bound to
accept these answers to the 4th question as they stand, would in my
judgment expose the Appellants to a risk of injustice from which
they are entitled to claim protection.
My Lords, the answers to that fourth question, of course,
depend upon what was the true nature of the liability of the
Appellants to Niger resulting from the offending transactions as
found by the Jury and as already described. Did these transactions
as thus ascertained involve on the part of the Appellants a breach
of their duty to Niger so serious as on their discovery by Levers
fifteen months later to be sufficient to justify an immediate dis-
claimer of all further responsibility under the Appellants’ agree-
ments of service ? That is the question.
My Lords, I have already given my reasons for the view that in
the fourth question the real relation between the parties is not pro-
perly appreciated. I have also explained why I think it so un-
16 [16]
fortunate that the learned Judge should have directed the Jury, as
he did, that the answers to Question 4 (a) and Question 4 (b) should
be based upon the same considerations. All this, however, is
relatively unimportant here. Even the further direction, to which
I am now about to refer, might have been allowed to pass, had the
fraud referred to in Question 3 (c) been found, for with that fraud
brought home to the Appellants the action would have really been
undefended. But that charge, like all the other charges of fraud,
failed and has disappeared, and the precise character in legal
responsibility of the offending transactions stripped of fraud
becomes of essential importance. And here the point to be noted is
that these transactions involved no contract or engagement in
which, either for profit or loss, Niger was at all concerned. The
contracts involved were all contracts by which the Appellants alone
were bound for their own benefit or burden to some outside party
exclusive of Niger altogether. And this distinction is vital:
because the liability of a Director in respect of profits made by him
from a contract in which his company also is concerned is quite
different from his liability, if any there be, in respect of his profits
from a contract in which the company has no interest at all. In the
first case, unless by the company’s regulations the Director is per-
mitted, subject to or without conditions, to retain his profit, he must
account for it to the company. In the second case, the company has
no concern in his profit and cannot make him accountable for it
unless it appears—this is the essential qualification—that in earning
that profit he has made use either of the property of the company
or of some confidential information which has come to him as a
Director of the company.
Now, unfortunately, the learned Judge here so far as his
observations had precision directed the Jury as if the offending
transactions were, in the first class, and not, as was the fact, in the
second, and he gave his direction without any reference at all to the
regulations of Niger.
The relevant duties of a director were laid down by him in terms
of the following quotation which he read to the Jury. Their duties
were:—
” So to act as to promote the best interests of the Company.
” No one having such duties to perform can be allowed to
” enter into engagements in which he has or can have a per-
” sonal interest which conflicts or may possibly conflict with the
” interests of those whom he is bound to protect. No question
” is liable on such occasion to be raised as to the fairness or
” unfairness of the dealing. It may be impossible to demon –
” strate how far the interest of the Company is affected. No
” inquiry on that subject is permitted.”
The learned Judge did not give the source of his quotation,
and I have not succeeded in tracing it. But both from its wording,
and also from its close similarity to Lord Cranworth’s locus
classicus on the subject printed in the head note to Aberdeen
Railway Coy. v. Blaikie, 1 Macq. 461, I can have little doubt that
like Lord Cranworth’s statement, the quotation is concerned with
a company’s contracts in which, on the other side of the table, a
director is interested, and with reference to which the company’s
regulations are silent. The quotation is not addressed to a
director’s own contracts in which the company has no financial
interest at all.
The regulations of Niger are illuminating with reference to both
classes of contracts. Article 47 concedes to its Directors in very
wide terms, and subject to exceptionally easy conditions the
privilege of being concerned in contracts with the Company. And
the Article also clearly contemplates that a Director may be a
Director of another company and entitled to his privileges as such.
[17] 17
And this brings me to the position of a Director in relation to
contracts of the second class, with which we are here alone con-
cerned. The principle will be found in the case usually cited
in relation to it, although reported only in the Weekly Notes, of The
London and Mashonaland Exploration Company v. New Mashona-
land Exploration Company, 1891, W. N. 165, where it was held,
that it not appearing from the regulations of the Company that a
Director’s services must be rendered to that Company and to no
other Company he was at liberty to become a Director even of a
rival Company, and it not being established that he was making to
the second Company any disclosure of information obtained con-
fidentially by him as a Director of the first Company he could not
at the instance of that Company be restrained in his rival
directorate. And in the present case that principle is not affected
by the agreements of each Appellant with Levers to devote all his
time during business hours to the Niger service. There is no
corresponding provision in the regulations of Niger, and it was not
because the offending instructions were instructed during the day
and not in the evening that they are impugned. It was not sug-
gested that the Appellants were in any way precluded by virtue of
their engagement from at any time entering into private speculations
of their own in outside things as e.g. stocks and shares. Indeed
any such suggestion was expressly disclaimed by the Respondents.
Moreover my Lords, the Respondents did endeavour to establish that
in relation to these transactions the Appellants did make use of
Niger’s property and information, and question 3 (c) is directed to
the only instance alleged which after the evidence remained open.
and it was answered in the negative. Accordingly I reach the con-
clusion that, so far, the Appellants in relation to the offending trans-
actions were under no liability whatever to Niger.
But all this is apart from the Pool Agreement. There remains
the question of the liability of the Appellants to Niger by reason of
the Directors’ clause in that agreement, and as to this, the Appel-
lants in my judgment were quite right in recognising so soon as that
clause was brought to their notice that they should not retain the
profit they bad made from these transactions.
Instead, therefore, of the direction to the Jury on this matter
being what it was, that direction, on the supposition that the facts
would be found as they have been, should, I think, have been to the
effect that in the absence of any proof that the Appellants in carry-
ing out the offending transactions had utilized for their own pur-
poses any property of Niger or any confidential information obtained
by them as its Directors, they were not, apart from the Pool Agree-
ment, under liability to account in respect of these offending
transactions to Niger, or to Levers, or at all. It was the Directors’
clause in the Pool Agreement alone which left the Appellants under
any liability in the matter, and it must lie taken that the existence
of that clause was unknown to them until some months after the
agreements of settlement, and many months after the offending
transactions. Nor should the renunciation of their profit by the
Appellants after ‘knowledge of the clause be overlooked in the con-
sideration of the question whether the offending transactions of the
Appellants would have justified more than a year after the event
a repudiation by Levers of further liability under the contracts of
service.
Upon the actual direction given to the Jury it is not surprising
that they found in reply to question 4 (a) that Levers, and in answer
to 4 (b) that Niger were respectively entitled to terminate the
Appellants’ contracts of service not only in January, 1928, but also
in March, 1929. What would be the answer to the proper questions
of a Jury directed on the lines just indicated ? I give no answer.
save this, that it would in my judgment be unjust to the Appellants
to expose them to the hazard of this amendment bound by the
13105
A 9
18 [18]
answers to question (4) as they stand, for it cannot be affirmed
that under a proper direction, applicable to the facts as found that
answer would be forthcoming. And it will not be forgotten that in
its absence the whole issue of mutual mistake remains, as an issue,
stillborn. Such, then, is my first reason for disallowing this
amendment.
My second reason is that the Appellants have not had the oppor-
tunity of showing by evidence the extent to which Levers received
consideration for the settlement agreements over and above their
release from liability for the further payments for which, on the
hypothesis, it was by all parties assumed that they remained liable.
I have already indicated the general nature of the advantages
derived by Levers from the settlement agreements, as these appear
on the record, but this aspect of the case has not been developed
in evidence because in the action as fought it was not either relevant
or necessary so to do. It may be, indeed I am far from saying
that, even on, the existing record, the Appellants have not sufficient
evidence on this point to displace the new plea altogether. But
here again it would, I think, be unfair to leave them exposed to the
hazard of the amendment with that answer to it quite undeveloped.
My third reason for disallowing the amendment is based on
the principle enunciated by Lindley, M.R., which I nave already
foreshadowed. It would be wrong, Lord Lindley said, in Nocton
v. Ashburton (see 1914, A.C. 963), ” to allow a case based on serious
” charges of fraud to be turned into a comparatively harmless case
” based ” in that instance also upon negligence. The qualification
of his statement made in this House, in the special circumstances
of that case, in no way questioned its essential soundness, and
further illustrations of its application will be found in Halsey v.
Brotherhood, 43 L.T. 466, 470, and Noad v. Murrow, 40 L.T. 100.
In my judgment it applies here with compelling force. The
first amendment made by the Respondents charging further frauds
against the Appellants with their failure after a prolonged hearing
to make any of them good, as I think furnishes, when the services
of the Appellants to Niger are remembered, a convincing reason why
this complete change of front after all else has failed should not be
permitted to the Respondents.
I cannot therefore hold with the view that the Appellants’
objections to this amendment are either technical or destitute of
merit. On the contrary, the objection seems to me to be funda-
mental, and in the interests of fairness in litigation it is, I think,
optimi exempli, that in such a case as this they should be sustained.
I am prepared, therefore, to allow this appeal on this head solely
on the ground that no case other than their pleaded case is open to
the Respondents in this House and mutual mistake has not been
pleaded.
But, my Lords, if, contrary to my own notions of the fitness of
things, the Appellants, bound by the Jury’s answers to question 4,
were to be put at risk by having this question of mutual mistake
determined on existing materials, I should not wish it to be sup-
posed that in my judgment the Appellants would fail. On the
contrary, they would, I think, even so handicapped, still succeed
on that question. There I find myself in entire accord with the
conclusions of my noble and learned friends Lord Atkin and
Lord Thankerton, whose judgments I have had the advantage
of reading. I refrain from adding to a deliverance already too
long any further observations on the case so regarded. My noble
friends begin where I am content to end. But I follow them also
to their goal.
But I would add a word on the second ground relied upon by
the Lords Justices in support of the learned Judge’s order namely
[19] 19
that it could be upheld for the reason that Levers’ unilateral mistake
which was certainly pleaded resulted from a neglect on the part of
the Appellants of their duty when negotiating the agreements of
settlement to disclose to Levers their offending transactions.
My Lords I am in entire agreement with the answer given to
this suggestion by my two noble friends opposite made on the
assumption, that Levers were the employers of the Appellants and
that the ” offence in their transactions had only temporarily passed
from their minds.
But if the true position be, as I have tried to show, that the
Appellants were not in any relevant sense the servants of Levers and
that the only reason why their transactions were ” offending ” was
that they involved Niger in a breach of the Directors Clause of the
Pool agreement of the existence of which the Appellants were not
merely forgetful but were in complete ignorance, what then I would
ask remains of any duty on their part to disclose? My Lords, in
that view of the situation the duty was I suggest plainly non-
existent. The action therefore, in my judgment, so far as it was
contested, entirely fails.
My Lords, I confess that I arrive without reluctance at this
conclusion of the whole matter. It appears to me to accord with
a sound view both of justice and of fairness. I should have
deemed it unfortunate if the Appellants had been left in enjoy-
ment of the profit accruing from the offending transactions and if
they had not been required to pay the nominal damage which the
Jury considered these transactions occasioned to Niger. But that
result has not followed. For both the profit and the damage they
remain accountable, as is wholesome.
Acceptance, however, by your Lordships’ House of the orders
appealed from would have meant that after the complete failure
of the grave charges of fraud preferred against officials whose
ability and services had brought to Niger advantages of untold
value these officials, the Appellants, would have been left exposed
to the same consequences as if the charges had all been true. Speak-
ing only for myself I feel relieved to be able to take a view of equity
and procedure which shields the Appellants from such a consequence.
Nor is it to my mind unjust that, their profit accounted for,
the Appellants should be left in possession by way of remuneration
for their services of sums which, while they may seem bountiful to
minds disciplined in a school of progressive austerity, would doubt-
less, by those engaged in great business, be regarded as no more
than adequate to the occasion.
In the result it will be right that the order of the Court of
Appeal should be discharged, with further consequential directions
which will be given later.
Viscount
Hailsham.
Lord
Blanes-
burgh.
Lord
Warring-
ton of
Clyffe.
Atkin.
Lord
Thank-
erton.
[20]
BELL and ANOTHER
v.
LEVER BROTHERS, LTD., AND ANOTHER.
Lord Warrington of Clyffe.
MY LORDS,
This is an appeal by the Appellants Ernest Hyslop Bell and
Walter Edward Snelling (the Defendants in the action) from a
unanimous judgment of the Court of Appeal (Scrutton Lawrence
and Greer L.JJ.) dated the 17th November, 1930, affirming a
judgment of Mr. Justice Wright (dated the 5th June, 1930) pro-
nounced upon the trial of the action before himself and a special
jury of the City of London. By that judgment certain agreements
made between the Respondents (Lever Brothers, Ltd., and the two
Appellants respectively) were declared void and were set aside and
the Appellants respectively were ordered to repay to the Respondents
(Lever Brothers, Ltd.) the sums of money paid to them thereunder.
The. substantial question raised by the Appeal is whether in
point of law upon certain findings of the jury, and upon such
inferences of fact as could properly be drawn from those findings
and the evidence, the two agreements were liable to be set aside on
the ground of mutual mistake of fact affecting what is alleged by
the Respondents to be a fundamental assumption accepted on both
sides as the basis on which the agreements were made.
A minor point of procedure was raised and decided against the
Appellants in both Courts, viz., whether having regard to the
pleadings and the conduct of the trial it was open to the learned
judge to decide the case on the point referred to above.
It is unnecessary for me to repeat the detailed statement of the
facts already made; it is quite enough to give a short summary of
them in order to explain the conclusions at which I have arrived.
In 1923 Lever Brothers, Ltd., having very large interests in the
Niger Company, Ltd. (the Respondents of that name), a Company
trading in cocoa and other produce on the West Coast of Africa,
were desirous of obtaining the services of persons of experience
and repute in the financial and commercial world to undertake and
improve in their interests as shareholders the conduct of the affairs
of the Niger Company, and with this object approached the two Ap-
pellants. The result was the making of a service agreement with each
of the Appellants, that with the Appellant Bell being dated the 9th
August, 1923, at a salary of £8,000 per annum, and that with the
Appellant Snelling being dated the 9th October, 1923, at a salary
of £6,000 per annum. Mr. Bell’s agreement was for five years
from the 1st October, and Mr. Snelling’s was for five years
from the 1st November, 1923. Each period was subsequently
extended to five years from the 1st July, 1926. By each agreement
the Appellant concerned agreed to serve the Lever Company and
to devote the whole of his time and attention during business hours
to the business of the Lever Company. The sphere of his service
was so far defined that in Mr. Bell’s case he was to be appointed
and maintained as Chairman of the Niger Company during his
service with the Lever Company. In Mr. Snelling’s case no such
specific agreement was made, but he as well as Mr. Bell was
appointed a director of the Niger Company, and while Mr. Bell
was appointed Chairman of the Board Mr. Snelling was appointed
[21] 2
a Vice-chairman. Each of them thus undertook direct obligations
towards the Niger Company as well as those obligations towards
the Lever Company which resulted from his service agreement.
The salary of each was borne and paid by the Lever Company.
By two letters dated the 1st July, 1926, signed by Mr. D’Arcy
Cooper on behalf of the Lever Company and addressed in the one
case to Mr. Bell and in the other to Mr. Snelling, the then existing
service agreements were varied, first by extending the period of
service as above mentioned, and secondly by giving to each of the
two gentlemen a commission on the profits of the Niger Company
as thereby defined in addition to his salary, which continued as
before.
It is not disputed that the services of the two Appellants in
their several capacities were of great value to the Lever Company
and to the Niger Company.
Early in the year 1929 certain arrangements for the amalga-
mation of the Niger Company and another company called the
African and Eastern Trading Company were made, which on their
becoming effective on the 1st May in that year would involve the
termination of the two service agreements before the period fixed
for their continuance, viz., the 1st July, 1931.
Under these circumstances Mr. D’Arcy Cooper entered into
negotiation with each of the two Appellants for fixing the amount
of compensation to be paid to them respectively for the premature
termination of their employment by the Lever Company. These
resulted in the two agreements the subject of this Appeal.
By each of these agreements the Appellant concerned agreed
that on the 1st May, 1929, he would retire from the Boards of the
Niger Company and its subsidiaries and in consideration of his so
doing the Lever Company would pay him as compensation for the
termination of his agreement and the consequent loss of office in
the case of Mr. Bell the sum of £30,000 and in that of Mr. Snelling
£20,000 in full satisfaction and discharge of all claims and
demands by him of every nature and kind and howsoever arising
against the Lever Company, the Niger Company and other com-
panies and persons therein mentioned. In Mr. Bell’s case pro-
vision was made for the continued payment by the Lever Company
of an insurance premium therein mentioned which will be referred
to later on.
These agreements were duly carried into effect by the resigna-
tion by Mr. Bell and Mr. Snelling of their several offices and by
payment to them respectively of the agreed compensation.
I now come to the circumstances giving rise to the present
litigation.
Between the 4th November and the 14th December, 1927, the two
Appellants entered on their own behalf into certain speculative
transactions in cocoa referred to in the proceedings at the trial as
contracts C.T.C., R.T.D., and G.S.2. These transactions resulted
in a net profit to the Appellants of £l,360. The fact that these
transactions had taken place was not disclosed to and was not
known by any of the Directors or officials of either the Niger Com-
pany or the Lever Company, except, of course, the Appellants
themselves, until after the conclusion of the agreements now in
question, and the payment of the compensation payable thereunder.
In or about June, 1929, in the course of certain arbitration pro-
ceedings, the particulars of which it is unnecessary to state, the
Appellants, in answer to enquiries made on behalf of the Niger
Company, disclosed the transactions above referred to and their
result.
In answer to questions put to them by the learned judge the
jury found that the Appellants committed breaches of contract or
duty towards the Respondents by entering into the contracts above
referred to as private transactions of their own and for their own
benefit. The correctness of this finding is not disputed.
8 [22]
The present action was commenced by the Lever Company alone
on the 9th August, 1929. By an amendment made on the 2nd April,
1930, the Niger Company were added as Co-Plaintiffs.
As ultimately submitted for decision the case of the Respon-
dents contained charges of fraudulent misrepresentation and con-
cealment by both Appellants with the object and effect of inducing
the Lever Company to make the agreements of the 19th March,1929, charges of wrongfully appropriating as their own the con-
tracts above mentioned being as alleged contracts of the Niger Com-
pany, and appropriating to themselves the profits on such contracts
and a charge of appropriating to their own use and benefit £1,000
the monies of the Niger Company. All these charges were nega-
tived by the jury and their findings in this respect are accepted.
The points of claim after the allegations of fraudulent mis-
representation and concealment above mentioned contained the
following clause :—
” 26. Alternatively the said agreements and each of them
” were made and the moneys paid thereunder were paid under
” a mistake of fact.”
and the Plaintiffs claimed rescission of the two agreements of the
19th March, 1929, and repayment of the moneys paid thereunder,
and a declaration that previously to the making of such agree-
ments the Plaintiffs were entitled to terminate the contracts of
service and to dismiss the Defendants without notice by reason of
their alleged conduct.
The Appellants admitted their liability to account to the Niger
Company for the £1,360 the profits on the transactions above men-
tioned, and this sum was duly paid into Court.
Ultimately the case was decided against the Appellants on the
alternative point above referred to, the mistake there mentioned
being treated as a mutual and not as a unilateral mistake.
The questions material to the issue of mistake as put to the
jury and their answers thereto were as follows:—
‘ 3 (B). Did the Defendants or either of them commit
‘ breaches of contract or duty towards the Plaintiffs in
‘ entering into the contracts referred to as C.T.C., R.T.D.,
‘ and G.S.2 or any of them as private transactions on their
‘ own account and for their own benefit? ”
Answer: ” Yes.”
” 4 (a). Were the Plaintiffs (Levers) entitled to deter-
” mine the contracts of service with the Defendants or either
“of them? ‘
” (1.) In January, 1928.”
Answer : ” Yes.”
” And (2) in March, 1929. If so would the Plaintiffs
“(Levers) have elected to exercise such right at either of such
“dates?”
” (b) Similar questions and answers as to the position
” of the Niger Company in reference to the offices therein held
” by the Defendants respectively.
“5. When Levers entered into the agreements of the 19th
” March, 1929, did they know of the actings of either of the
” Defendants in regard to the dealings C.T.C., R.T.D.,
“G.S.2?”
” If Levers had so known would they have made these
” agreements or either of them? ”
Answer: “No.”
” At the date of the respective interviews prior to these
” agreements had the Defendant Bell or the Defendant
[23] 4
” Snelling in mind their actings in respect of these
” transactions? ‘
Answer: ” No.”
The final question was put to the jury at the suggestion of the
learned judge, and obviously is only relevant to the issue whether
there was a mutual mistake. No objection to it was taken on the
part of the Appellants. Moreover, it is quite obvious that an
argument founded on unilateral mistake had not the slightest
chance of success, and it must have been clear to both parties that
the learned judge was going to deal with the case as one of mutual
as distinguished from unilateral mistake. I will assume for the
present that either on the pleadings as rightly understood, or on
the manner in which the case was conducted, or on the assumption
that all the evidence reasonably likely to be forthcoming on the
point was before the Court the learned judge was entitled to deal
with the matter on the footing of mutual mistake, and will consider
the case on that footing.
The learned judge thus describes the mistake invoked in this
case as sufficient to justify a Court in saying that there was no
true consent, viz., ” Some mistake or misapprehension as to some
” facts . . . which by the common intention of the parties, whether
” expressed or more generally implied, constitute the underlying
” assumption without which the parties would not have made the
” contract they did.” That a mistake of this nature common to
both parties is, if proved, sufficient to render a contract void is, I
think, established law.
I will refer to two cases only amongst several in which the
principle was acted on. The first is one at Common Law, viz.,
Strickland v. Turner, 7 Exch. 208. In that case a contract for
sale of an annuity, under which the purchase money had been paid,
was held to be void at law and the money was ordered to be repaid,
on its being discovered that the person on whose life the annuity
depended had without the knowledge of either party died before the
date of the contract of sale. The parties were treated as having
intended to contract on the basis of something of value actually
existing, and as this proved not to have been the case the contract
failed to be binding.
The other case (Scott v. Coulson, 1903, 2 Ch. 249) is an example
of the application of the same principle in a Court of Equity. A
contract for the sale of a policy was set aside on its being dis-
covered that the assured was dead at its date, both parties being
in ignorance of that fact. I cite this case for the sake of a passage
in the judgment of Vaughan Williams, L.J. He says: ” If we
‘ are to take it that it was common ground that at the date of the
‘ contract for the sale of their policy both the parties to the con-
‘ tract assumed the assured to be alive, it is true that both parties
‘ entered into the contract on the basis of a common affirmative
‘ belief that the assured was alive; but as it turned out that there
‘ was a common mistake the contract was one which cannot be
‘ enforced. This is so at law and the Plaintiffs do not require to
‘ have recourse to equity to rescind the contract if the basis which
‘ both parties recognised as the basis is not true.”
This principle, however, is confined to cases in which ” the
” mistake is as to the substance of the whole consideration going
” as it were to the root of the matter ” (Kennedy v. Panama Mail
Company, L.R., 2 Q.B., 580, p. 588), and does not apply where
the mistake is only as to some point, a material point it may be,
and even one which may have been the actuating motive of one of
the parties, an error as to which does not affect the substance of
the whole consideration.
Kennedy v. The Panama Mail Company is a case in which it
was held that the error relied on did not affect the substance of the
consideration and the contract in question was accordingly
5 [24]
enforced. The contract was one to take shares in a company. The
prospectus on the faith of which the Plaintiff had applied for
shares contained a representation made in good faith that the
company had obtained a valuable contract for the carriage of
mails. The representation was intended to, and did in fact, in-
duce the Plaintiff to apply for shares. It was untrue, for though
at the time the application for shares was made and accepted
there were reasonable grounds for expecting that such a contract
would be obtained, it was never in fact concluded. It is to be
observed that the error did not affect the shares themselves the
subject of the contract impeached; they were, notwithstanding the
error, the very thing about which the parties were contracting. All
that was affected were the prospects of the company earning profits
available for payment of dividends. Accordingly the Plaintiff’s
action brought for the purpose of setting aside the contract and
obtaining repayment of his subscription was dismissed.
In Smith v. Hughes, L.R., 6 Q.B. 597, the result was the same,
but for a different reason, viz., that there was no sufficient finding
that the mistake was mutual. It was alleged that the vendor was
intending to sell and the purchaser intending to buy and believed
he was buying old oats whereas the actual parcel of oats, the sub-
ject of the contract, consisted of new oats. The purchaser’s claim
to be relieved of the contract failed because the learned Judge at
the trial did not point out the necessity of finding not only that
the purchaser believed the oats were old but that he also believed
that the vendor was selling them as old.
This kind of difficulty does not arise in the present case. It is
in my opinion clear that each party believed that the remunerative
offices compensation for the loss of which was the subject of the
negotiations were offices which could not be determined except by
the consent of the holder thereof, and further believed that the
other party was under the same belief and was treating on that
footing.
The real question therefore is whether the erroneous assump-
tion on the part of both parties to the agreements that the service
contracts were undeterminable except by agreement was of such a
fundamental character as to constitute an underlying assumption
without which the parties would not have made the contract they
in fact made, or whether it was only a common error as to a material
element but one not going to the root of the matter and not affecting
the substance of the consideration.
With the knowledge that I am differing from the majority of
your Lordships I am unable to arrive at any conclusion except that
in this case the erroneous assumption was essential to the contract
which without it would not have been made.
It is true that the error was not one as to the terms of the
service agreements, but it was one which, having regard to the
matter on which the parties were negotiating, viz., the terms on
which the service agreements were to be prematurely determined
and the compensation to be paid therefor, was in my opinion as
fundamental to the bargain as any error one can imagine.
The compensation agreed to be paid was in each case the amount
c>f the full salary for the two years and a half unexpired with the
addition in Mr. Bell’s case of £10,000 and in Mr. Snelling’s of
£5,000. It is difficult to believe that the jury were otherwise than
correct in their answer to the second branch of the group of ques-
tions numbered 5, viz., that had Levers known of the actings of the
Appellants in regard to the dealings in question they would net
have made the agreements now impeached or either of them. It is
true that such a finding is not in the strict sense one of fact, but it
is an inference which the jury were entitled to draw from the
evidence and from all the circumstances of the case, it is one which
the learned judge and the Court of Appeal have also drawn, and
if, I may say so with respect, it is one I should draw myself. I
[25] 6
also agree with the learned judge that looking at the matter from
the side of the Appellants the existence of an agreement giving them
rights which could only be compromised by compensation was in the
same way the root and basis of the cancellation agreements.
In my opinion therefore, assuming that the point was open, the
appeal on the main question ought to be dismissed.
As to the question whether the point was open I agree that it is
at least doubtful whether mutual mistake as to a fundamental fact
was sufficiently pleaded either in the pleading itself or by the par-
ticulars subsequently given, but I have no hesitation in coming to
the same conclusion as that arrived at by Scrutton and Lawrence
L. J.J., viz., that having regard to the proceedings at the trial effect
ought not to be given to a technical objection such as that in ques-
tion—no further evidence was in my opinion needed or could
reasonably be expected to be forthcoming on the question and no
substantial prejudice has been sustained by the Defendants.
But while I think the appeal ought to be dismissed, there is one
point which appears to have been overlooked at the trial and in
reference to which in my judgment there should if the appeal were
dismissed be a variation in the order.
The service agreement with Mr. Bell provided that Lord Lever-
hulme was to take out in the Atlas Assurance Company and Lever
Brothers to pay all premiums on an Endowment Policy on Mr. Bell’s
life maturing at the age of 60 or previous death for an amount
which would provide £1,500 per annum or £16,200 at his option.
This policy was to belong to him, the premiums being paid by Lever
Brothers, notwithstanding the termination of his engagement unless
the same should be terminated by him. The cancellation agreement
preserved this obligation on the part of Lever Brothers, and if this
is set aside the original agreement stands. I cannot think that
the conduct of Mr. Bell amounts to a termination by him of the
engagement within the meaning of the provision above-mentioned,
and if the judgment appealed From were to stand provision should
be made for the continued payment by Lever Brothers of the pre-
miums, and the repayment to Mr. Bell of any premiums paid by
him.
I have purposely avoided dealing with the question whether the
Appellants were under an obligation as servants to disclose to Lever
Brothers their breaches of the service agreements. In the view I
take the question is immaterial. If such an obligation existed it
would merely afford a further ground for the termination by Lever
Brothers of the service agreements, for which such breaches them-
selves afforded a sufficient ground.
This case seems to me to raise a question as to the application
of certain doctrines of common law, and I have therefore not
thought it necessary to discuss or explain the special doctrines and
practice of Courts of Equity in reference to the rescission on the
ground of mistake of contracts, conveyances and assignments of
property and so forth or to the refusal on the same ground to decree
specific performance, though I think in accordance with such
doctrines and practice the same result would follow.
[16]
BELL AND ANOTHER
v.
LEVER BROTHERS LIMITED AND OTHERS
Viscount
Hailsham.
Lord
Blanes
burgh.
Lord
Warring-
ton of
Clyffe.
Lord
Atkin.
Lord
Thanker-
ton.
Lord Atkin.
my lords.
This case involves a question of much importance in the forma-
tion and dissolution of contracts. The facts are not very com-
plicated, though in the course of eliciting them the legal proceedings
have undergone vicissitudes which have made the task of deter
mining the issues more difficult than need be. In 1923 The Niger
Co. Ld. was controlled by Lever Brothers Ld. whom I shall call
Levers, who held over 99 per cent, of its shares. The Niger Co.
dealt in West African produce including cocoa and at this time
appears to have been making trading losses. To restore the position
Levers approached the appellant Bell who had banking experience
and the appellant Snelling, a chartered accountant, with a view to
their taking part in the management of the Niger Co.’s affairs. In
August, 1923. an agreement was made between Levers and Bell,
under which Bell entered the service of Levers for a term of five
years from 1st November. 1923, on the terms of letters of 8th
August, 1923, which provided that Bell’s salary was to be £8.000
a year. Levers were to pay the premiums on an endowment policy
maturing at the age of 60 for a sum of £16.200. Levers were to
appoint and maintain Bell as Chairman of the Niger Co. during
his service. Bell was only to be responsible to the Committee of
Control of Lever Bros, and to the shareholders of the Niger Co.
In October an agreement was made between Snelling and Levers
whereby Snelling was to be in the service of the company for five
years from 1st October. 1923, on the terms of a letter of 12th
September, which provided that Snelling was to serve Levers in
regard to its West African interests at a salary of £10.000 per
annum to 31st March, 1925, and £6,000 for the remainder of the
five years. On 14th September both Bell and Snelling were
appointed by the Niger Co. directors of the company, and
Bell was appointed chairman of the Board. In April, 1924,
Snelling was appointed a vice-chairman. The result of the appoint-
ments1 was a success. The Niger Co. began to prosper and in July,
1926, the agreements of both Bell and Snelling with Levers were
cancelled and new agreements substituted for a further period of
five years from 1st July, 1926, at the same salaries but with a com-
mission on the profits of the Niger Co. The Niger Co. continued
to prosper, and in March, 1929. arrangements were concluded
for an amalgamation between the Niger Co. and its principal trade
competitor, the African and Eastern Trading Corporation. The
terms of the amalgamation appear to have left no room for Bell or
Snelling. It was necessary, therefore, to dispose of the agreements
between them and Levers. Mr. D’Arcy Cooper, the chairman of
Levers, saw both gentlemen and arranged terms with them which
are recorded in two letters of 19th March, 1929. The letter to Bell
is as follows. [Set out letter at p. 210.] The letter to Snelling
is in similar terms except that the compensation given was £20,000.
Both sums were only paid on 1st May, 1929, on which date the
two appellants retired from their service with Levers and from the
Boards of the Niger Co. and various subsidiary companies to which
they had been appointed. Very little attention appears to have
been paid at the trial to these subsidiary companies, and there is
[27] 2
a scarcity of evidence about them. The position in regard to them
may demand further consideration; at present I leave them on one
side. The position then is that in March, 1929, the two appellants
left the service of Levers with substantial compensation in their
pockets and mutual expressions of respect and esteem.
In July, 1929, Levers discovered facts which indicated that their
expenditure of £50,000 and their expressions of regard had been
misplaced, for the years October-October, 1926-7, 1927-8, and
1928-9, the .Niger Co., together with three of its trading com-
petitors, including the African and Eastern Trade Corporation,
had been parties to what were called “Pooling Agreements,” under
which the parties undertook to disclose to one another their dealings
in Gold Coast cocoa; not to buy cocoa produced elsewhere without
the consent of the Pool Committee; agreed to fix from time to time
buying and selling prices and not to sell without consent below the
agreed selling price; and made provision for distributing in agreed
proportions the proceeds of the pool. It appears to have been con-
sidered necessary that the operations of the Niger Co. under the
pool should be carried out without excessive publicity; and the
brokers’ contracts for the Niger Co. were recorded under initials.
In November and December, 1927, the two appellants, at a time
when the Pool Committee were lowering the pool purchase price of
cocoa, on several occasions sold cocoa short; and closing in a few
days at the reduced price made profits. A few days later they
bought for the rise and made a small profit. Altogether the
dealings resulted in a profit of £1,360. The transaction was of
course conducted without the knowledge of Levers or any responsible
official of the Niger Co. It was carried out in secrecy; and pay-
ment of the profit was made by the brokers at the appellants’
request in a draft for American dollars. No defence can be offered
for this piece of misconduct. The appellants were acting in a
business in which their employers were concerned; their interests
and their employers conflicted; they were taking a secret advantage
out of their employment; and committing a grave breach of duty
both to Levers and to the Niger Co. The jury have found that
had the facts been discovered during the service, Levers could and
would have dismissed them, and no objection can be taken to this
finding.
Having made this discovery it naturally occurred to Levers that
instead of spending £50,000 to cancel the two service agreements
they might, if they had known the facts, have got rid of them
for nothing. They therefore claimed the return of the money from
the appellants, as well as the amount of the profits made; and on
7th August, 1929, issued the writ in the present action, claiming
damages for fraudulent misrepresentation and concealment; an
account of the defendants’ dealings in cocoa; and repayment of
money paid under a mistake of fact.
The pleadings were in conformity with the endorsement on the
writ. The defendants admitted the dealings in cocoa, alleging that
they were speculative dealings in differences. They denied that
they were wrongful but pleaded tender of the profit of £1,360
which sum by an amended defence they paid into Court. It was
not disputed in the Court of Appeal or before this House that the
dealings were wrongful; and no question remains on this issue or
as to the remedy ordered in respect of it.
The trial began on 24th March, 1930, before Wright J. and
a City of London Special Jury. On the fourth day on the con-
clusion of their evidence the plaintiffs sought and obtained
permission to amend their pleadings by alleging a series of
fraudulent dealings in cocoa by the defendants involving misappro-
priation of the Niger Co.’s funds. At the same time for the
first time the Niger Co. were added as plaintiffs. The
3 [28]
defendants were eventually acquitted of all the new charges. On
5th May, 1930, the trial commenced anew before the same Judge
and a new Jury. At the conclusion of the evidence there was some
discussion as to the questions to be put to the Jury. The Court
adjourned for a day or two before the summing up of the Judge.
There had been some discussion as to the issue raised by the plea
of mistake, and when the case was resumed counsel for the
plaintiffs suggested an additional question : ” Did the plaintiffs
” in entering into the said agreements for the payment of and in
” paying the £30,000 and £20,000 respectively act in ignorance of
” the defendants’ conduct (my Lord that avoids the word
” ‘ mistake ‘ to which Your Lordship took objection) and was such
” ignorance due to non-disclosure by the defendants of such
” conduct ? ‘ So far this seems to have been the only reference to
the matter of mistake in the proposed questions. The learned
Judge said : ” I have been thinking about that matter; probably
” yours is better; but what I thought of asking was this: ‘ When
” ‘ Levers entered into the agreement of 19th March, 1929, did
” ‘ they know of the actings of the defendants or either of them
” ‘ in regard to the dealings C.T.C., R.T.D. and G.S.2? If Levers
‘ had known would they have made these agreements or either of
” ‘ them? At the date of the respective interviews prior to these
” ‘ agreements had the defendants or either of them in mind their
” ‘ actings in respect of these transactions?
To the last question Mr. Pritt for the defendants objected
that there was no evidence that they had. Whereupon the Judge
said: ” The point must really arise; that issue of fact will have •
” to be dealt with by the Jury when they are considering the ques-
” tion of fraudulent misrepresentation or fraudulent concealment.
” On the other hand the verdict of the Jury on this point may
” have some bearing hereafter on the question of mistake.”
The circumstances under which this last question was admitted
are relevant to the complaint of the appellants as to the subsequent
admission of any issue as to mutual mistake. They say that the
only issue raised by the pleadings was as to a unilateral mistake
by the plaintiffs; that the question propounded by the plaintiffs
shows this; and that it cannot be assumed that the Judge, while
stating that the plaintiffs’ questions might be better, but he pre-
ferred his own, should have asked a question for the purpose of
solving an issue as to mutual mistake which was not upon the plead-
ings and upon which no witness had been examined or cross-
examined and on which no word bad been said to the jury by counsel
on either side. At present it is unnecessary to say more on the
topic.
The questions as finally left to the jury and their answers have
been stated to the House and I need not repeat them. The Judge
heard argument as to how judgment should be entered. At some
stage of the proceedings the parties had agreed that rescission of
the agreements must be left to the Judge and that on any point left
to him he must have leave to draw inferences of fact. Eventually
the Judge gave judgment for apparently both plaintiffs for £31,224
against the defendant Bell and £20,000 against the defendant
Snelling, on the ground that ” there was a total failure of considera-
tion such as to vitiate the bargain ” because ” the parties dealt
‘ with one another under a mutual mistake as to their respective
‘ rights.” On appeal this judgment was affirmed. The three
Lords Justices accepted the view of Mr. Justice Wright that there
was a mutual mistake which entitled the plaintiffs to recover. They
were also agreed that there was a duty upon the defendants to
disclose to the plaintiffs their misconduct as to the cocoa dealings
and that the contracts under which the money was paid were in
consequence voidable.
[29] 4
Before the Court of Appeal and before this House the appellants
contended that no issue as to mutual mistake had been raised by the
pleadings, and that it was not open to the learned Judge or to the
Court of Appeal to determine the case without an amendment of
the pleadings and upon an issue of fact which was not submitted to
the jury. The Lords Justices appear to have held varying
views on this point. Lord Justice Scrutton thought that the point
was not pleaded, but that it was the practice of the Courts to deal
with the legal result of pleaded facts, though the particular legal
result is not pleaded except where to ascertain the validity of the
legal result would require the investigation of new and disputed
facts which had not been investigated at the trial. Here he thought
that there were no such disputed facts, and the question could be
dealt with without amendment. Lord Justice Lawrence on the
assumption that mutual mistake was not pleaded thought that all
the facts relevant to mutual mistake had been fully investigated
and ascertained at the trial: and that the objection was a mere
technical objection without merits. Lord Justice Greer thought
that mutual mistake was sufficiently pleaded.
I think it is sufficient to say for present purposes that it seems
to me clear when the pleadings and particulars are examined that
the pleading was confined to unilateral mistake. In these circum-
stances the Judge on a trial with a jury has without consent of the
parties no jurisdiction to determine issues of fact not raised by the
pleadings: nor in my opinion would a general consent to determine
issues not decided by the jury include a power without express
further consent after the jury had been discharged to amend plead-
ings so as to raise further issues of fact. Similarly the powers of
the Court of Appeal, which under 0. 58 r. 4 are wider than those
of the Judge, are limited in the case of trials by jury to determine
issues of fact in cases where only one finding by a jury could be
allowed to stand. Further, I think that the Court of Appeal
cannot without amendment decide a case upon an unpleaded issue
of Law which depends upon an unpleaded issue of fact. If the issue
of fact can be fairly determined upon the existing evidence they
may of course amend : but in any such case amendment appears to
me to be necessary. In this House in the course of the hearing
an amendment was tendered by the plaintiffs which did aver a
mutual mistake. In the view that I take of the whole case it
becomes unnecessary to deal finally with the appellants’ complaint
that the points upon which the plaintiffs succeeded were not
open to them. 1 content myself with saying that much may be said
for that contention.
Two points present themselves for decision. Was the agree-
ment of March 19, 1929, void by reason of a mutual mistake of Mr.
D’Arcy Cooper and Mr. Bell ?
Could the agreement of March 19, 1929, be avoided by reason
of the failure of Mr. Bell to disclose his misconduct in regard to the
cocoa dealings ?
My Lords, the rules of law dealing with the effect of mistake on
contract appear to be established with reasonable clearness. If
mistake operates at. all it operates so as to negative or in some cases
to nullify consent. The parties may be mistaken in the identity of
the contracting parties, or in the existence of the subject matter of
the contract at the date of the contract, or in the quality of the
subject matter of the contract. These mistakes may be by one party,
or by both, and the legal effect may depend upon the class of mistake
above mentioned. Thus a mistaken belief by A that he is contract-
ing with B, whereas in fact he is contracting with C, will negative
consent where it is clear that the intention of A was to contract only
with B. So the agreement of A and B to purchase a specific article
5 [30]
is void if in fact the article had perished before the date of sale. In
this case, though the parties in fact were agreed about the subject
matter, yet a consent to transfer or take delivery of something not
existent is deemed useless; the consent is nullified. As codified in.
the Sale of Goods Act the contract is expressed to be void if the
seller was in ignorance of the destruction of the specific chattel. I
apprehend that if the seller with knowledge that a chattel was
destroyed purported to sell it to a purchaser, the latter might sue
for damages for non-delivery though the former could not sue for
non-acceptance, but I know of no case where a seller has so com-
mitted himself. This is a case where mutual mistake certainly and
unilateral mistake by the seller of goods will prevent a contract
from arising. Corresponding to mistake as to the existence of the
subject matter is mistake as to title in cases where unknown to the
parties the buyer is already the owner of that which the seller
purports to sell to him. The parties intended to effectuate a transfer
of ownership : such a transfer is impossible : the stipulation is
naturali ratione inutilis. This is the case of Cooper v. Phibbs,
L.R. 2 H.L. 149 (1867), where A agreed to take a lease of a fishery
from B. though contrary to the belief of both parties at the time A
was tenant for life of the fishery and B appears to have had no
title at all. To such a case Lord Westbury applied the principle
that if parties contract under a mutual mistake and misapprehen-
sion as to their relative and respective rights the result is that the
agreement is liable to be set aside as having proceeded upon a
common mistake. Applied to the context the statement is only
subject to the criticism that the agreement would appear to be void
rather than voidable. Applied to mistake as to rights generally it
would appear to be too wide. Even where the vendor has no title
though both parties think he has, the correct view would appear to
be that there is a contract, but that the vendor has either com-
mitted a breach of a stipulation as to title, or is not able to perform
his contract. The contract is unenforceable by him but is not void.
Mistake as to quality of the thing contracted for raises more
difficult questions. In such a case a mistake will not affect assent
unless it is the mistake of both parties and is as to the existence of
some quality which makes the thing without the quality essentially
different from the thing as it was believed to be. Of course it may
appear that the parties contracted that the article should possess
the quality which one or other or both mistakenly believed it to
possess. But in such a case there is a contract and the inquiry is a
different one. being whether the contract as to quality amounts to a
condition or a warranty, a different branch of the law. The
principles to be applied are to be found in two cases which as far
as my knowledge goes (have always been treated as authoritative
expositions of the law.
The first is Kennedy v. Panama Royal Mail Co., L.R. 2 Q.B.
580 (1867). In that case the plaintiff had applied for shares in the
defendant company on the faith of a prospectus which stated falsely
but innocently that the company had a binding contract with the
Government of New Zealand for the carriage of mails. On dis-
covering the true facts the plaintiff brought an action for the
recovery of the sums he had paid on calls. The defendants brought
a cross action for further calls. Blackburn J. in delivering the
judgment of the Court (Cockburn C.J., Blackburn, Mellor and
Shee J.J.) said at p. 586 : ‘ The only remaining question is one of
‘ much greater difficulty. It was contended by Mr. Mellish on
‘ behalf of Lord Gilbert Kennedy that the effect of the prospectus
‘ was to warrant to the intended shareholders that there really was
‘ such a contract as is there represented, and not merely to represent
‘ that the company bona fide believed it; and that the difference in
‘ substance between shares in a. company with such a contract and
[31] 6
” shares in a company whose supposed contract was not binding,
” was a difference in substance in the nature of the thing; and that
” the shareholder was entitled to return the shares as soon as he
” discovered this quite independently of fraud on the ground that
” he had applied for one thing and got another. And if the
” invalidity of the contract really made the shares he obtained
” different things in substance from those which he applied for
” this would we think be good law. The case would then resemble
” Gompertz v. Bartlelt and Gurney v. Womersley where the person
” who had honestly sold what he thought a bill without recourse to
“him, was nevertheless held bound to return the price on its
” turning out that the supposed bill was a forgery in the one case
” and void under the stamp laws in the other; in both cases the
” ground of this decision being that the thing handed over was
” not the thing paid for. A similar principle was acted on in
” Ship’s case. There is, however, a very important difference
” between oases where a contract may be rescinded on account
” of fraud, and those in which it may be rescinded on the ground
” that there is a difference in substance between the thing bargained
” for and that obtained. It is enough to show that there was a
” fraudulent representation as to any part of that which induced
” the party to enter into the contract which he seeks to rescind;
” but where there has been an innocent misrepresentation or mis-
” apprehension it does not authorise a rescission unless it is such
” as to show that there is a complete difference in substance between
” what was supposed to be and what was taken so as to con-
” stitute a failure of consideration. For example, where a horse
” is bought under a belief that it is sound, if the purchaser was
” induced to buy by a fraudulent representation as to the horse’s
” soundness the contract may be rescinded. If it was indirectly an
” honest misrepresentation as to its soundness, though it may be
” clear that both vendor and purchaser thought that they were
” dealing about a sound horse and were in error, yet the purchaser
” must pay the whole price unless there was a warranty, and even
” if there was a warranty he cannot return the horse and claim
” back the whole price unless there was a condition to that effect
” in the contract—Street v. Blay.”
The Court came to the conclusion in that case that though there
was a misapprehension as to that which was a material part of the
motive inducing the applicant to ask for the shares, it did not
prevent the shares from being in substance those he applied for.
The next case is Smith v. Hughes, L.R. 6 Q.B. 597 (1871), the
well-known case as to new and old oats. The action was in the
County Court, and was for the price of oats sold and delivered and
damages for not accepting oats bargained and sold. Cockburn C. J.
at p. 604 cites Story on contracts as follows : ” Mr. Justice Story
” in his work on Contracts (Vol. 1, s. 516) states the law as to con-
” cealment as follows : ‘ The general rule, both of law and equity,
” in respect to concealment is that mere silence with regard to a
” material fact which there is no legal obligation to divulge will not
” avoid a contract although it operate as an injury to the party
” from whom it is concealed. Thus,’ he goes on (s. 517),
” although a vendor is bound to employ no artifice or disguise for
” the purpose of concealing defects in the article sold since that
” would amount to a positive fraud on the vendee, yet under this
” general doctrine of caveat emptor he is not ordinarily bound to
” disclose any defect of which he may be cognisant, although his
” silence may operate virtually to deceive the vendee. But,’ he
continues (s. 518), ‘ an improper concealment or suppression of a
” material fact which the party concealing is legally bound to dis-
” close and of which the other party has a legal right to insist
” that he shall be informed is fraudulent and will invalidate a
” contract.’ Further distinguishing between extrinsic circum-
7 [32]
” stances affecting the value of the subject-matter of a sale and the
” concealment of intrinsic circumstances appertaining to its nature,
” character and condition, he points out (s. 519) that with reference
” to the latter the rule is ‘ that mere silence as to anything which
” ‘the other party might by proper diligence have discovered and
” ‘ which is open to his examination is not fraudulent unless a
” ‘ special trust or confidence exist between the parties or be
” ‘ implied from the circumstances of the case.’ In the doctrine
” thus laid down I entirely agree.”
In a further passage he says : ” It only remains to deal with an
” argument which was pressed upon us that the defendant in the
” present case intended to buy old oats and the plaintiffs to sell
” new, so that the two minds were not ad idem and that conse-
” quently there was no contract. This argument proceeds on the
” fallacy of confounding what was merely a motive operating on
” the buyer to induce him to buy with one of the essential condi-
” tions of the contract. Both parties were agreed as to the sale
” and purchase of this particular parcel of oats. The defendant
” believed the oats to be old and was thus induced to agree to buy
” them, but he omitted to make their age a condition of the con-
” tract. All that can be said is that the two minds were not
” ad idem as to the age of the oats; they certainly were ad idem
” as to the sale and purchase of them. Suppose a person to buy
” a horse without a warranty believing him to be sound and the
” horse turns out unsound, could it be contended that it would be
” open to him to say that as he had intended to buy a sound horse
” and the seller to sell an unsound one the contract was void because
” the seller must have known from the price the buyer was willing
” to give or from his general habits as a buyer of horses that he
” thought the horse was sound. The cases are exactly parallel.”
Blackburn J. said, p. 606 : ” In this case I agree that on the
” sale of a specific article unless there be a warranty making it
” part of the bargain that it possesses some particular quality the
” purchaser must take the article he has bought though it does not
” possess that quality. And I agree that even if the vendor was
” aware that the purchaser thought that the article possessed that
” quality, and would not have entered into the contract unless he
” had so thought, still the purchaser is bound unless the vendor
” was guilty of some fraud or deceit upon him, and that a mere
” abstinence from disabusing the purchaser of that impression is
” not fraud or deceit; for whatever may be the case in a court of
” morals, there is no legal obligation on the vendor to inform the
” purchaser that he is under a mistake not induced by the act of
” the vendor.”
The Court ordered a new trial. It is not quite clear whether
they considered that if the defendants’ contention was correct the
parties were not ad idem or there was a contractual condition that
the oats sold were old oats. In either case the defendant would
succeed in defeating the claim.
In these cases I am inclined to think that the true analysis is
that there is a contract, but that the one party is not able to supply
the very thing, whether goods or services, that the other party con-
tracted to take : and therefore the contract is unenforceable by
the one if executory, while if executed the other can recover back
money paid on the ground of failure of the consideration.
We are now in a position to apply to the facts of this
case the law as to mistake so far as it has been stated. It is essential
in this part of the discussion to keep in mind the finding of the
jury acquitting the defendants of fraudulent misrepresentation or
concealment in procuring the agreements in question. Grave
injustice may be done to the defendants : and confusion introduced
into the legal conclusion unless it is quite clear that in considering
[33] 8
mistake in this case no suggestion of fraud is admissible and must
sternly be rejected by the Judge who has to determine the legal
issues raised. The agreement which is said to be void is the agree-
ment contained in the letter of 19th March, 1929, that Bell would
retire from the Board of the Niger Co. and its sub-
sidiaries and that in consideration of his doing so Levers
would pay him as compensation for the termination of his agree-
ments and consequent loss of office the sum of £30,000 in full satis-
faction and discharge of all claims and demands of any kind against
Lever Bros., the Niger Co. or its subsidiaries. The agreement
which as part of the contract was terminated had been broken so
that it could be repudiated. Is an agreement to terminate a
broken contract different in kind from an agreement to terminate
an unbroken contract assuming that the breach has given the one
party the right to declare the contract at an end ? I feel the weight
of the Plaintiffs’ contention that a contract immediately determin-
able is a different thing from a contract for an unexpired term
and that the difference in kind can be illustrated by the immense
price of release from the longer contract as compared with the
shorter. And I agree that an agreement to take an assignment of
a lease for five years is not the same thing as to take an assignment
of a lease for three years, still less a term for a few months. But
on the whole I have come to the conclusion that it would be wrong
to decide that an agreement to terminate a definite specified con-
tract is void if it turns out that the agreement had already been
broken and could have been terminated otherwise. The contract
released is the identical contract in both cases : and the party
paying for release gets exactly what he bargains for. It seems
immaterial that he could have got the same result in another way :
or that if he had known the true facts he would not have entered
into the bargain. A. buys B.’s horse : he thinks the horse is sound
and he pays the price of a sound horse : he would certainly not
have bought the horse if he had known, as the fact is, that the horse
is unsound. If B. has made no representation as to soundness and
has not contracted that the horse is sound, A. is bound, and cannot
recover back the price. A. buys a picture from B. : both A. and B.
believe it to be the work of an old master and a high price is paid.
It turns out to be a modern copy. A. has no remedy in the absence
of representation or warranty. A. agrees to take on lease or to
buy from B. an unfurnished dwelling house. The house is in fact
uninhabitable. A. would never have entered into the bargain if
he had known the fact. A. has no remedy: and the position is the
same whether B. knew the facts or not, so long as he made no
representation or gave no warranty. A. buys a roadside garage
business from B. abutting on a public thoroughfare : unknown to
A. but known to B. it has already been decided to construct a bye-
pass road which will divert substantially the whole of the traffic
from passing A.’s garage. Again A. has no remedy. All these
cases involve hardship on A. and benefit B. as most people would
say unjustly. They can be supported on the ground that it is of
paramount importance that contracts should be observed : and that
if parties honestly comply with the essentials of the formation of
contracts, i.e., agree in the same terms oil the same subject matter,
they are bound : and must rely on the stipulations of the contract
for protection from the effect of facts unknown to them.
This brings the discussion to the alternative mode of expressing
the result of a mutual mistake. It is said that in such a case as
the present there is to be implied a stipulation in the contract that
a condition of its efficacy is that the facts should be as understood
by both parties, viz., that the contract could not be terminated
till the end of the current term. The question of the existence of
conditions express or implied is obviously one that affects not the
formation of contract, but the investigation of the terms of the
9 [34]
contract when made. A condition derives its efficacy from the con-
sent of the parties express or implied. They have agreed, but on
what terms. One term may be that unless the facts are or are
not of a particular nature, or unless an event has or has not
happened, the contract is not to take effect. With regard to future
facts such a condition is obviously contractual. Till the event
occurs the parties are bound. Thus the condition (the exact terms
of which need not here be investigated), that is generally accepted
as underlying the principle of the frustration cases is contractual:
an implied condition. Sir John Simon formulated for the
assistance of your Lordships a proposition which should be recorded
” Whenever it is to be inferred from the terms of a contract or
” its surrounding circumstances that the consensus has been reached
” upon the basis of a particular contractual assumption, and that
” assumption is not true the contract is avoided, i.e., it is void
” ab initio if the assumption is of present fact and it ceases to
” bind if the assumption is of future fact.”
I think few would demur to this statement but its value depends
upon the meaning of ” a contractual assumption ” and also upon
the true meaning to be attached to ” basis,” a metaphor which may
mislead. When used expressly in contracts for instance in policies
of insurance which state that the truth of the statements in the pro-
posal is to be the basis of the contract of insurance, the meaning
is clear. The truth of the statements is made a condition of the
contract, which failing the contract is void unless the condition is
waived. The proposition does not amount to more than this that
if the contract expressly or impliedly contains a term that a par-
ticular assumption is a condition of the contract the contract is
avoided if the assumption is not true. But we have not advanced
far on the inquiry how to ascertain whether the contract does con-
tain such a condition. Various words are to be found to define
the state of things which makes a condition. ” In the contemplation
” of both parties fundamental to the continued validity of the
” contract,” ” a foundation essential to its existence,” ‘ a funda-
” mental reason for making it ” are phrases found in the
important judgment of Scrutton L.J. in the present case. The
first two phrases appear to me to be unexceptionable. They
cover the case of a contract to serve in a particular place, the
existence of which is fundamental to the service, or to procure the
services of a professional vocalist whose continued health is essen-
tial to performance. But ” a fundamental reason for making a
” contract ” may with respect be misleading. The reason of one
party only is presumedly not intended, but in the cases I have
suggested above of the sale of a horse or of a picture,
it might be said that the fundamental reason for making the con-
tract was the belief of both parties that the horse was sound or
the picture an old master, yet in neither case would the condition
as I think exist. Nothing is more dangerous than to allow oneself
liberty to construct for the parties contracts which they have not
in terms made by importing implications which would appear to
make the contract more businesslike or more just. The implica-
tions to be made are to be no more than are ” necessary ” for giving
business efficacy to the transaction : and it appears to me that both
as to existing facts or future facts a condition should not be implied
unless the new state of facts makes the contract something different
in kind from the contract in the original state of facts. Thus in
Krell v. Henry 1903 : 2 K.B. at p. 754 Vaughan Williams L.J.
finds that the subject of the contract was ” rooms to
“view the procession”: the postponement therefore made
the rooms not rooms to view the procession. This also
is the test finally chosen by Lord Sumner in Bank Line
v. Capel 1919 A.C. 436 agreeing with Lord Dunedin in Metro-
[35] 10
politan Water Board v. Dick Kerr 1918 A.C. at p. 128 where deal-
ing with the criterion for determining the effect of interruption in
” frustrating ” a contract he says, ” an interruption so long as to
” destroy the identity of the work or service with the work or
” service when interrupted.” We therefore get a common
standard for mutual mistakes and implied conditions whether as
to existing or as to future facts. Does the state of the new facts
destroy the identity of the subject matter as it was in the original
state of facts ? To apply the principle to the infinite combinations
of facts that arise in actual experience will continue to be difficult:
but if this case results in establishing order into what has been
a somewhat confused and difficult branch of the law it will have
served a useful purpose.
I have already stated my reasons for deciding that in the present
case the identity of the subject matter was not destroyed by the
mutual mistake, if any, and need not repeat them.
It now becomes necessary to deal with the second point of the
plaintiffs, viz., that the contract of 19th March, 1929, could be
avoided by them in consequence of the non-disclosure by Bell of his
misconduct as to the cocoa dealings. Fraudulent concealment has
been negatived by the jury; this claim is based upon the contention
that Bell owed a duty to Levers to disclose his misconduct, and that
in default of disclosure the contract was voidable. Ordinarily the
failure to disclose a material fact which might influence the mind
of a prudent contractor does not give the right to avoid the contract.
The principle of caveat emptor applies outside contracts of sale.
There are certain contracts expressed by the law to be contracts of
the utmost good faith where material facts must be disclosed; if not
the contract is voidable. Apart from special fiduciary relation-
ships contracts for partnership and contracts of insurance are the
leading instances. In such cases the duty does not arise out of con-
tract; the duty of a person proposing an insurance arises before a
contract is made; so of an intending partner. Unless this contract
can be brought within this limited category of contracts uberrimae
fidei it appears to me that this ground of defence must fail. I see
nothing to differentiate this agreement from the ordinary contract
of service; and I am aware of no authority which places contracts
of service within the limited category I have mentioned. It seems
to me clear that master and man negotiating for an agreement of
service are as unfettered as in any other negotiation. Nor can I
find anything in the relation of master and servant when estab-
lished that places agreements between them within the protected
category. It is said that there is a contractual duty of the servant
to disclose his past faults. I agree that the duty in the servant to
protect his master’s property may involve the duty to report a
fellow servant whom he knows to be wrongfully dealing with that
property. The servant owes a duty not to steal, but having stolen
is there superadded a duty to confess that he has stolen? I am
satisfied that to imply such a duty would be a departure from the
well-established usage of mankind and would be to create obliga-
tions entirely outside the normal contemplation of the parties con-
cerned. If a man agrees to raise his butler’s wages, must the butler
disclose that two years ago he received a secret commission from the
wine merchant; and if the master discovers it, can he without
dismissal or after the servant has left avoid the agreement for the
increase in salary and recover back the extra wages paid? If he
gives his cook a month’s wages in lieu of notice can he on discovering
that the cook has been pilfering the tea and sugar claim the return
of the month’s wages ? 1 think not. He takes the risk; if he wishes
to protect himself he can question his servant, and will then be
protected by the truth or otherwise of the answers.
I agree with the view expressed by Avory J. in Healey v. Societe
Anonyme Francaise, 1917, 1 K.B. 946, on this point. It will be
11 [36]
noticed that Bell was not a director of Levers, and with respect I
cannot accept the view of Greer L.J. that if he was in a fiduciary
relationship to the Niger Co. he was in a similar fiduciary relation-
ship to the shareholders, or to the particular shareholders (Levers)
who held 99 per cent, of the shares. Nor do I think that it is
alleged or proved that in making the agreement of 19th March,
1929, Levers were acting as agents for the Niger Co. In the matter
of the release of the service contract and the payment of £30,000
they were acting quite plainly for themselves as principals. It
follows that on this ground also the claim fails.
The result is that in the present case servants unfaithful in some
of their work retain large compensation which some will think they
do not deserve. Nevertheless it is of greater importance that well
established principles of contract should be maintained than that a
particular hardship should be redressed; and I see no way of giving
relief to the plaintiffs in the present circumstances except by con-
fiding to the Courts loose powers of introducing terms into contracts
which would only serve to introduce doubt and confusion where
certainty is essential.
I think therefore that this appeal should be allowed; and I agree
with the order to be proposed by my noble and learned friend Lord
Blanesburgh.
[37]
Viscount
Hailsham.
Lord
Blanes-
burgh.
Lord
Warring-
ton of
Clyffe.
Lord
Atkin.
Lord
Thanker-
ton.
ERNEST HYSLOP BELL and WALTER EDWARD
SNELLING (Appellants)
v.
LEVER BROTHERS LIMITED and NIGER COMPANY
LIMITED (Respondents).
Lord Thankerton.
MY LORDS,
The detailed facts of this case have been sufficiently stated
already by your Lordships. The findings of the jury were accepted
by all parties, who were also agreed that the Court should have
leave to draw inferences of fact generally.
The two main contentions between the parties are whether the
agreements of March, 1929, are liable to be set aside (a) on the
ground of mutual mistake or error, or (b) by reason of the non-
disclosure of material facts by the Appellants, whereby Lever
Brothers were induced to enter into these agreements.
The judgment of both Courts below was unanimously against
the Appellants on the first point, and, while Wright J. expressed
no opinion, the Court of Appeal was also unanimously against the
Appellants on the second point, though the first point was sufficient
for their disposal of the case. The Appellants, however, must
succeed on both points in order to succeed in their appeal.
Both these points raise important questions of principle and I
regret to find myself unable to agree with the conclusions of the
Courts below on either point. In this view, it is unnecessary for
me to deal with the two further questions, namely, whether the
first point is open to the Respondents on the pleadings and the
course of procedure, and whether the obligation in Mr. Bell’s ser-
vice agreement as to payment by Lever Brothers of the premiums
on an endowment policy remains binding, despite the setting aside
of the agreement of March, 1929.
The findings of the jury establish that the Appellants’ four
cocoa transactions in November and December, 1927, constituted
a breach of contract or duty towards the Respondents, which would
have entitled Lever Brothers to terminate the Appellants’ contracts
of service either in January, 1928, or March, 1929, and that Lever
Brothers would have exercised such right at either of these dates.
The jury also found that the Niger Company would have been
entitled to dismiss the Appellants from their positions as chairman
and vice-chairman respectively on either of these dates and would
have done so. The jury further found that Lever Brothers entered
into the agreements of March, 1929, in ignorance of these trans-
actions of the Appellants and that, if Lever Brothers had known
of them, they would not have entered into these agreements. As
regards the state of the Appellants’ mind, the question and answer
was as follows :- ‘At the date of the respective interviews prior
‘ to these agreements, had the Defendant Bell or the Defendant
‘ Snelling in mind their actings in respect of these transactions?”,
to which the jury’s answer was ” No.” By their earlier answers
the jury had acquitted the Appellants of inducing Lever Brothers
to enter into the agreements of March, 1929, by fraudulent mis-
representation of faithful and honest service or by fraudulent
concealment of their cocoa transactions.
13105 A 11
[38]
2
It will be convenient to deal first with the question whether
the Appellants had a duty to disclose their cocoa transactions to
Lever Brothers when negotiating the agreements of March, 1929.
If there was such a duty, there is no doubt that the failure to dis-
close—though innocent—amounted to a misrepresentation as to
material facts which induced Lever Brothers to enter into these
agreements, and which would entitle the latter to rescind them.
The learned Judges of the Court of Appeal appear to regard the
duty to disclose as arising at the time of negotiating the contract,
but I am unable to see that any such duty could arise out of the
circumstances of these agreements; in my opinion, the first ques-
tion must be whether the Appellants incurred a duty to disclose
these transactions at the time that they were completed. The
failure to account for the profits to the Niger Company on which
some of the learned Judges lay stress, was an integral part of the
breach of duty to that Company. The Appellants had just as
much—or just as little—right to continue drawing their salaries
without disclosure as they had to negotiate two years later for the
commutation of these same salaries. In truth, the negotiations in
March, 1929, were at arm’s length, and not on the footing of the
relationship of master and servant, but for the termination
of that relationship, and, if there was not an already existing
breach of an obligation to disclose, I am unable to see how the
circumstances of the agreements of March, 1929, could be held to
create such an obligation.
In the absence of fraud, which the jury has negatived, I am of
opinion that neither a servant nor a director of a company is legally
bound forthwith to disclose any breach of the obligations arising
out of the relationship, so as to give the master or the company
the opportunity of dismissal; on subsequent discovery, the master
or company will not be entitled to hold the dismissal as operating
from the date of the breach, but will be liable for wages or salary
earned by the servant during the intervening period. In my
opinion Healey v. Societe Anonyme Francaise Rubastic, (1917)
1 K.B. 946, which was the case of the managing director of a
company, was rightly decided. There may well be cases in which
the concealment of the misconduct amounts to a fraud on the master
or company, but the jury have excluded that view in the present
case. The other cases to which we were referred relate to a duty
to disclose all material facts on formation of a contract, and form
exceptions to the general rule, which does not impose such a duty.
The most familiar of these exceptions is found in the case of policies
of insurance, as to which Blackburn J. says in Fletcher v. Krell,
(1873) 28 L.T. 105, ” mercantile custom has established the rule
‘ with regard to concealment of material facts in policies of
‘ insurance, but in other cases there must be an allegation of moral
‘ guilt or fraud.” Other exceptions are found in cases of trustee
and cestui qui trust and of a company issuing a prospectus and an
applicant for shares, but the number of exceptions is limited, and
no authority has been cited which extends the exceptions to cover
a case such as the present.
Accordingly, I am of opinion that the Appellants had no legal
duty to disclose their cocoa transactions either at the time of their
commission or in negotiation for the agreements of March, 1929.
Turning next to the question of mutual error or mistake, I
think that the Respondents’ contention may be fairly stated as
follows, vizt., that in concluding the agreements of March, 1929,
all parties proceeded on the mistaken assumption that the
Appellants’ service agreements were not liable to immediate ter-
mination by Lever Brothers by reason of the Appellants’ miscon-
[39] 3
duct, and that such common mistake involved the actual subject
matter of the agreements, and did not merely relate to a quality
of the subject matter.
The cases on this branch of the law are numerous, and in seek-
ing the principle on which they rest, I will at first confine my
attention to those which relate to innocent mutual mistake on
formation of the contract, as it appears to me that the cases relat-
ing to facts arising subsequently to the formation of the contract
may be found to rest on a somewhat different principle.
But first let me define the exact position as at the date of the
agreements of March, 1929. The service agreements of both
Appellants were then existing as binding legal contracts, although
it was in the power of Lever Brothers, had they then known of
the Appellants’ breach of contract, to have terminated the con-
tracts; but, until the exercise of such power, the contracts remained
binding. It is also clear that an essential purpose of the agree-
ments of March, 1929, was to secure the termination of these service
agreements. The mistake was not as to the existence of agreements
which required termination—for such did exist—but as to the
possibility of terminating them by other means.
A clear exposition of the principles to be applied in such a case
as the present is to be found in the judgment of the Court of
Queen’s Bench (Cockburn C.J., Blackburn, Mellor and Shee J.J.),
in Kennedy v. Panama &c. Co., (1867) L.R. 2 Q.B. 580, delivered
by Blackburn J., who, as Lord Blackburn, reaffirmed this opinion
in 1881 in Mackay v. Dick, 6 App. Cas. 251, at 265. In Kennedy’s
case the Plaintiff had taken shares in a further issue of capital
by the Panama Company, being induced by a statement in the
prospectus that the purpose of the issue was to enable the company
to carry out a contract recently entered into with the Government
of New Zealand for the carriage of mails. That contract had been
made with the agent of the New Zealand Government, both parties
believing that he had authority to make it; but it turned out that
he had no such authority and the Government refused to ratify it.
Having failed on. the charge of fraud and deceit against the
directors of the company for making the statements in the
prospectus, the Plaintiff submitted a second contention, which is
stated in the judgment as follows (at p. 586 foot), ” It was contended
” that the effect of the prospectus was to warrant to the intended
” shareholders that there really was such a contract as is there
” represented, and not merely to represent that the company bona
” fide believed it; and that the difference in substance between
” shares in a company with such a contract and shares in a com-
” pany whose supposed contract was not binding, was a difference
” in substance in the nature of the thing; and that the shareholder
” was entitled to return the shares as soon as he discovered this,
” quite independently of fraud, on the ground that he applied for
” one thing and got another. And, if the invalidity of the con-
” tract really made the shares he obtained different things in sub-
” stance from those which he applied for, this would, we think,
” be good law. The case would then resemble Gompertz v.
” Bartlett ” (2 E. & B. 849; 23 L.J. (Q.B.) 65) “and Gurney v.
” Womersley ” (4 E. & B. 133; 24 L.J. (Q.B.) 46) ” where the
” person, who had honestly sold what he thought a bill without
” recourse to him, was nevertheless held bound to return the price
” on its turning out that the supposed bill was a forgery in the
” one case, and void under the stamp laws in the other; in both
” cases the ground of decision being that the thing handed over
” was not the thing paid for.”
4 [40]
The Respondents’ contention in the present appeal is
in effect the same as the above contention; they maintain that
the service agreements surrendered to them are not the service
agreements paid for, in respect that they were immediately
defeasible by them. Blackburn J. proceeds (at p. 587) : ” There
” is, however, a very important difference between cases where a
” contract may be rescinded on account of fraud, and those in
” which it may be rescinded on the ground that there is a difference
” in substance between the thing bargained for and that obtained.
” It is enough to show that there was a fraudulent representation
” as to any part of that which induced the party to enter into
” the contract which he seeks to rescind; but where there has been
” an innocent misrepresentation or misapprehension, it does not
” authorise a rescission unless it is such as to show that there is
” a complete difference in substance between what was supposed to
” be and what was taken, so as to constitute a failure of considera-
” tion. For example, where a horse is bought under a belief that
” it is sound, if the purchaser was induced to buy by a fraudulent
” representation as to the horse’s soundness, the contract may be
” rescinded. If it was induced by an honest misrepresentation as
” to its soundness, though it may be clear that both vendor and
” purchaser thought that they were dealing about a sound horse
‘ and were in error, yet the purchaser must pay the whole price,
‘ unless there was a warranty.” After referring to the passages
in the Digest of Civil Law and the way the question is there mooted,
Blackburn J. says (at p. 588) ” the answers given by the great
‘ jurists quoted are to the effect that, if there be misapprehension
‘ as to the substance of the thing, there is no contract; but if it
‘ be only a difference in some quality or accident, even though
‘ the misapprehension may have been the actuating motive to the
‘ purchaser, yet the contract remains binding.” And he adds
‘ And, as we apprehend, the principle of our law is the same as
‘ that of the civil law.” This passage makes clear that it is not
enough for the purchaser to prove that the misapprehension was
the inducing cause to him and that, if he had known, he would
not have entered into the contract. The earlier passage as to the
sale of an unsound horse also shows that it is not enough that a
grossly excessive price has been paid for a bad article. In that
case it was held that the shares obtained by Kennedy in the com-
pany were not substantially different things but that the case was
analogous to that of the horse supposed to be sound.
It is pointed out in Kennedy’s case that, if the directors had
known that the contract was not valid, the contract might have
been avoided on the ground of a fraudulent misrepresentation. In
the present case, there being no obligation to disclose, the
Appellants, if they had had their misconduct in mind, would have
been entitled to say nothing about it, and the Respondents, in the
absence of fraud, would have been bound by the contracts, even
though, if they had known, they would not have entered into the
contracts, but would have terminated the service agreements. I
have difficulty in seeing how the fact that the Appellants did not
remember at the time is to put the Respondents in a better position.
The phrase ” underlying assumption by the parties,” as applied
to the subject matter of a contract, may be too widely interpreted
so as to include something which one of the parties had not neces-
sarily in his mind at the time of the contract; in my opinion it
can only properly relate to something which both must necessarily
have accepted in their minds as an essential and integral element of
the subject matter. In the present case, however probable it may
be, we are not necessarily forced to that assumption. Cooper v.
Phibbs, (1867) L.R. 2 H.L. 149, is a good illustration, for both
[41]
parties must necessarily have proceeded on the mistaken assump-
tion that the lessor had the right to grant the lease and that the
lessee required a lease. Lord Westbury says (at p. 170) ” the
” Respondents believed themselves to be entitled to the property,
” the petitioner believed that he was a stranger to it, the mistake
” is discovered, and the agreement cannot stand.”
In Scott v. Coulson, (1903) 1 Ch. 453. affirmed (1903) 2 Ch. 249,
it was common ground that at the date of the contract for sale of
the life policy both parties supposed the assured to be alive, the
result being that the Plaintiffs were willing to accept as the best
price they could get for the policy a sum slightly in advance of
its surrender value and very much below the sum due on the death
of the assured. As a matter of fact the assured was dead. It
was therefore clear that the subject matter of the contract was a
policy still current with a surrender value and that accordingly
the subject matter did not exist at the date of the contract.
Couturier v. Hastie, (1856) 5 H.L. 673, where the cargo sold was
held not to have existed at the date of sale, and Strickland v.
Turner, (1852) 7 Exch. Cas. 208, where the annuitant was in fact
dead at the date of sale of the annuity, were cases where the subject
matter was not in existence at the date of the contract. There
are many other cases to the same effect, but I think that it is true
to say that in all of them it either appeared on the face of the
contract that the matter as to which the mistake existed was an
essential and integral element of the subject matter of the contract
or it was an inevitable inference from the nature of the contract
that all the parties so regarded it.
In the present case the terms of the contracts throw no light
on the question, and, as already indicated, I do not find sufficient
material to compel the inference that the Appellants, at the time
of the contracts, regarded the indefeasibility of the service agree-
ments as an essential and integral element in the subject matter
of the bargain.
The range of authorities relating to some alteration in circum-
stances subsequent to the date of the contract do not, in my opinion,
raise a question of mutual error or mistake; in them the formation
of the contract is complete and binding, but subsequent events arise
which critically affect the contract, but whose occurrence has not
been provided for in the contract. However it may be stated,
when relief from the contract is given, the Court, as it appears
to me, rests such relief on an implied condition which forms part
of a complete and binding contract, but which, on the happen-
ing of certain events, terminates the contract. These authorities
appear to me, therefore, to have no bearing on the question of error
or mistake as rendering a contract void owing to failure of
consideration.
Accordingly, I am of opinion that the Appellants are entitled
to succeed in their appeal and that the judgments of the Courts
below so far as appealed against by them, should be reversed. I
therefore concur in the motion to be proposed by my noble and
learned friend Lord Blanesburgh.
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